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ROUND TABLE Venture capital and efficiency of portfolio companies
| Content Provider | Semantic Scholar |
|---|---|
| Author | Rajan, Alexander T. |
| Copyright Year | 2015 |
| Abstract | Venture Capital (VC) has emerged as the dominant source of finance for entrepreneurial and early stage businesses, and the Indian VC industry in particular has clocked the fastest growth rate globally. Academic literature reveals that VC funded companies show superior performance to non VC funded companies. However, given that venture capitalists (VCs) select and fund only the best companies, how much credit can they take for the performance of the companies they fund? Do the inherent characteristics of the firm result in superior performance or do VCs contribute to the performance of the portfolio company after they have entered the firm? A panel that comprised VCs, an entrepreneur and an academic debated these and other research questions on the inter-relationships between VC funding and portfolio firm performance. Most empirical literature indicates that the value addition effect dominates the selection effect in accounting for the superior performance of VC funded companies. The panel discussion indicates that the context as well as the experience of the General Partners in the VC firms can influence the way VCs contribute to the efficiency of their portfolio companies. a 2010 Indian Institute of Management Bangalore. All rights reserved. Academic perspective Venture Capital (VC) has emerged as an important and dominant source of financing today for entrepreneurial and early stage businesses. Many of the successful businesses that we know today such as Cisco, eBay, Apple, and Google received VC funding at one point or the other. Some of the companies in India that received VC funding include Polaris, Biocon, Sasken, Shoppers’ Stop, and Landmark. VC backed firms contribute to the economy through the creation of jobs, an exceptional growth rate, their heavy investments, and their international expansion (Romain & Potterie, 2004). The proportion of companies that receive VC funding, however, is very small. Kaplan and Lerner (2010) indicate that only 1/6th of 1% of new businesses manage to obtain VC funding. Despite the small proportion of companies that receive VC funding, there has been a growth in the availability of VC over the years in the different economies. In the US, which is by far the leader in VC investments by a big margin, the availability of VC funding has been stable with respect to the stock markets. From 2005 to 2008, annual commitments to VC ran in the range of $25e$33 billion. The historical average (since 1980) of VC commitments in the US, measured as a fraction of the total market value of equity, was 0.138%. Since 2002, however, the commitments * Tel.: þ91 44 2257 4569; fax: þ91 44 2257 4552. E-mail address: thillair@iitm.ac.in 0970-3896 a 2010 Indian Institute of Management Bangalore. All rights reserved. Peer-review under responsibility of Indian Institute of Management Bangalore. doi:10.1016/j.iimb.2010.10.009 INDIAN INSTITUTE OF MANAGEMENT BANGALORE IIMB ava i lab le at www.sc iencedi rect .com journa l homepage: www.e lsev ie r . com/ loca te / i imb IIMB Management Review (2010) 22, 186e197 |
| File Format | PDF HTM / HTML |
| Alternate Webpage(s) | http://isiarticles.com/bundles/Article/pre/pdf/4220.pdf |
| Language | English |
| Access Restriction | Open |
| Content Type | Text |
| Resource Type | Article |
