Asian Journal of Innovation and Policy

Asian Society for Innovation and Policy (아시아기술혁신학회)
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IPO/M&A Exits by Venture Capital in India: Do Agency Risks Matter?

  • Joshi, Kshitija (National Institute of Advanced Studies, Indian Institute of Science campus) ;
  • Chandrashekar, Deepak (Department of Management Studies, Indian Institute of Science)
  • Received : 2018.11.05
  • Accepted : 2018.12.24
  • Published : 2018.12.31
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Abstract

Venture Capital Firms (VCs) encounter severe information asymmetry risks at almost every stage in their investment lifecycle. This paper explores the agency risks arising from information asymmetry during the stage of exits by VCs from the funded companies in their portfolio and how that impacts the incidence of specific types of type of exits (IPOs/M&As). In this empirical study, by using the data on IPO and M&A exits from venture capital-funded companies, we show how the ability of prospective buyers to better resolve agency risks is directly correlated with the incidence of the above exit types. Using the technique of logistic regression, we demonstrate that factors such as syndication, specialization focus of the VC firm (in terms of stage and sector) and the level of its social capital (proxied by its age and experience) drive the success rate of exits. This is one of first studies in context of exits from VC funded companies in the Indian context.

Keywords

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Figure 1 Proposed model of VC exits

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Figure 2 Distribution of successful exits

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Figure 3 IPO and M&A exits and funding stage focus

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Figure 4 IPO and M&A exits and VC firm ownership type

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Figure 5 IPO and M&A exits and high-technology investment focus

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Figure 6 IPO and M&A exits and age of the VC firm

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Figure 7 IPO and M&A exits and physical location of the VC firm in Bangalore

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Figure 8 IPO and M&A exits and syndication of the VC firms

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Figure 9 IPO and M&A exits and social sector focus of VC firms

Table 1 Bi-Variate correlations

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Table 2 Logistic regression model output

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