Exit performance of venture capital backed high-tech start-ups

Abstract

- Venture capital (VC, henceforth) investments in their portfolio companies facilitate the innovation and economic growth in market-based economies through the provision of invaluable screening, monitoring, networking and specialized financial services to managers of young high-tech businesses. We analyzed the internal financial predictors of the exit performance of VC backed companies in the UK. Using data collected from Zephyr and FAME databases of Bureau van Djik (BvD), we assembled a dataset of 1,294 observations of VC backed portfolio companies' exit types and performance metrics from 1997-2016 in the UK. We then designed a multinomial logit model which estimates the impact of financial positioning on the exit routes of entrepreneurial firms. We find that VC exits through IPOs and M&As when compared with other exit outcomes are more likely to: be profitable, able to meet their debt obligations as they fall due, have greater access to foreign funds as they are usually located in big cities like London, privately sponsored and expand their operations rapidly in the services sector.