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Factors Determining the Performance of Early Stage High-Technology Venture Capital Funds – A Review of the Academic Literature

Factors Determining the Performance of Early Stage High-Technology Venture Capital Funds – A Review of the Academic Literature

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Published by dmaproiect
The purpose of this literature review is to document academic research concerning factors
influencing the performances of venture capital funds, as well as the venture capital fundraising
decisions. Industry specialisation, large fund sizes, strong deal flow, syndication of investments,
and especially, experience, all appear to be factors leading to superior investment performance,
which is particularly well illustrated by the US venture capital industry. The review also concludes
that venture capital fund returns to a great extent depend on an early or later stage focus, and the
timing of the fundraisings. For policy makers the most significant measures, according to the
findings, are to nurture a competitive local technology stock market, establish efficient legal
frameworks and tax structures, and minimize labour market rigidities. Moreover, it seems like the
vast majority of all venture capital returns are generated by the limited number of funds in the top
quartile. Therefore, the possibility to get access to the best performing venture capital funds is
probably more important than anything else in order for institutional investors to gain excess
returns. In terms of geographical differences, the UK venture capital situation appears to be
somewhere half way between the US and the continental Europe.
The purpose of this literature review is to document academic research concerning factors
influencing the performances of venture capital funds, as well as the venture capital fundraising
decisions. Industry specialisation, large fund sizes, strong deal flow, syndication of investments,
and especially, experience, all appear to be factors leading to superior investment performance,
which is particularly well illustrated by the US venture capital industry. The review also concludes
that venture capital fund returns to a great extent depend on an early or later stage focus, and the
timing of the fundraisings. For policy makers the most significant measures, according to the
findings, are to nurture a competitive local technology stock market, establish efficient legal
frameworks and tax structures, and minimize labour market rigidities. Moreover, it seems like the
vast majority of all venture capital returns are generated by the limited number of funds in the top
quartile. Therefore, the possibility to get access to the best performing venture capital funds is
probably more important than anything else in order for institutional investors to gain excess
returns. In terms of geographical differences, the UK venture capital situation appears to be
somewhere half way between the US and the continental Europe.

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Published by: dmaproiect on Feb 25, 2010
Copyright:Attribution Non-commercial

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