Venture Capital and Private Equity Research at Vlerick

Transcription

1 Venture Capital and Private Equity Research at Vlerick Prof. Sophie Manigart / Prof. Miguel Meuleman / David Devigne / Bart Van Hoe Overview presentation Intro to venture capital and private equity Why interesting as a research setting? Theoretical perspectives Overview datasets Current research projects Discussion 2 1

2 Intro to venture capital and private equity Facebook s valuation (January 4, 2011) Goldman Sachs and Digital Sky Technologies (Usmanov s Russian investment fund) pay $500 mio for 1% stake in Facebook Facebook value = $50 bio 3 times more than what Microsoft paid three years ago Company is 7 years old 500 mio users (valuing each user at $100!) Huge growth Comscore: Q3 2010: showed 300 bio ads Cooperation with Zynga (Farmville game) is very valuable 2010: sales 2 bio, profits 400 mio (P/E: 125!) IPO is expected

3 Facebook s valuation (January 4, 2011) What do private equity players and venture capitalists do? Private Equity Take the risks on a business plan and on the growth of the firm Mobilize and allocate capital in the economy Invests in equity instruments of private companies Invests in equity related instruments Replaces existing shareholders: Completely Buyouts Buyins Partially Replacement capital Brings additional resources Growth capital Venture capital Invests in equity instruments of private companies Invests in equity related instruments Joins with other venture capitalist to provide risk capital in successive rounds The objective is to create value through capital gains. 6 3

4 Just in case The private equity and venture capital industry... Raises funds from several sources Invests professionally in equity and equity related instruments of private companies Grows the value of the companies Creates liquidity for the investments 7 Private equity activity in Europe Funds raised Investments Divestments at cost Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Source: EVCA/PEREP_Analytics 8 4

5 European private equity divestments exit route trends Index Q = 100 Trade sale Sale to PE firms Write-offs Other Total divestment Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Source: EVCA/PEREP_Analytics European divestments by segment in Q Q Top Exit routes (more than 400 C exited) Venture Capital Buyout & growth # companies divested # companies divested 186 m 72 m Trade Sale (55) Write-Off (27) 1.5 bn 1.3 bn Secondary buyout (62) Trade Sale (50) 42 m Secondary buyout (7) 0.3 bn Sale of Quoted Equity (7) Source: EVCA/PEREP_Analytics 5

6 PE returns Source: Thomson Reuters / EVCA Performance Survey PE variation in returns Source: Thomson Reuters / EVCA Performance Survey Top performing funds generate positive risk-adjusted returns

7 In Europe: many different type of players in the industry APAX CVC Permira Funds GP LP FUND FUND Captive Institutional investor Investment manager Fortis Private Equity Family offices Investee companies Private investment co. Co Investee companies Listed investment firms Stock market Co 3I GIMV DBAG Eurazeo Capman Investee companies Investee companies The business system Institutional investors: pension funds, insurance companies, family offices Fundraising Investment Exit Fund of funds Fund of funds Placement agents Fund Fund Fund Fund Fund Intermediaries Company Company Company Company Investment bankers Stock market Strategic acquirer Fund Or Secondary Fund 7

8 Interesting research setting 1. Information on (almost) full population a) Over 1 (Europe) to 2 (US) decades, currently also Asia and RoW b) Numerous linkages between actors 2. Individual projects a) Clear begin and end dates b) No confounding factors: individual performance observed 3. Extreme risk 4. Numerous different actors, different roles, 15 Theoretical perspectives 8

9 Theoretical perspectives Agency theory / multiple agency theory Social netwerk theory Human capital theory Resource-based theory Decision making theory Conflict theory Institutional theory Finance and law Contracting theory Ethics 17 Agency theory / multiple agency theory 18 9

10 Agency theory / reputation 19 Social netwerk theory 20 10

11 Social netwerk theory/agency theory 21 Human capital theory 22 11

12 Resource-based theory/agency theory 23 Decision making theory 24 12

13 Decision making 25 Finance and law 26 13

14 Governance 27 Learning theory / institutional theory 28 14

15 Contracting theory 29 Conflict theory 30 15

16 Ethics 31 Datasets used 16

17 VICO dataset 7 European countries: Belgium, France, Italy, Germany, Spain, Finland, U.K. Sample criteria: Independent at start-up Active in high-tech industry: aerospace, biotech, energy, ICT manufacturing, internet, nanotech, pharmaceutical, robotics, software, telecom, web publishing and other R&D Created between Including successful and unsuccessful investments => 7611 companies that did not receive venture capital Maximum 10 years old at initial investment Initial VC investment => 759 venture capital backed companies Full detailed description: 33 VICO data sources VentureXpert (1, 5) Investor annual reports (1, 5) Investor websites (1, 5) Press releases (1, 3, 5) Press clippings (1, 3, 5) Venture Capital Association yearbooks (1, 5) ZEW Foundation Panel (1, 3, 5) VC Pro-Database (1, 5) BVK Directory (1, 5) Zephyr (1, 3) RITA directory (1) Private Equity Monitor (1) Italian Private Equity (1) José Martí Pellón Database (1, 3, 5) WebCapitalRiesgo.com (1, 3, 5) Library House (1, 3, 5) Amadeus (2, 3) Belfirst (2, 3) Creditreform (2) RITA directory (2, 3, 5) AIDA (2) TELEMACO (2, 3) Belgian law gazette (3) Company websites (3) German stock exchange (3, 5) PATSTAT database (4) IPO prospectuses (5) 1: Portfolio company identification 2: Accounting data 3: Company data 4: Patent data 5: Investment data 34 17

18 Database VICO Financial statement data Followed for (max) 10 years after initial VC investment Key items including sales, tangible assets, intangible assets, total assets, cash, equity and financial debt, Patent data Including patent owner, citations, publications, patent s application and grant years, industry patent classes, and priority countries, Venture capital investment data Including investment year, investment amount, venture capital firm type and venture capital firm age, exit type and exit timing, Venture capital investor data General experience, sector experience, country experience, VC firm focus, 35 VICO SURVEY TO COMPANIES Control of sample criteria: independent, VC backed, Experience of founders: serial entrepreneur, PhD, MBA, Equity finance: Search of equity finance Negotiations with founding, after 2 years, If negotiations were unsuccessful: main reason? Exit way of VC Several questions on the contribution of the VCs: Strategy Signalling PC quality Technology position Internationalization Marketing position Exit orientation Management professionalization Adverse effects of VC? Financial function 36 18

19 VICO COUNTRY DISTRIBUTION INVESTMENTS VC-backed companies 759 Investors 1,125 Investors per company (mean) 2.77 Investments per company (mean) 4.58 TOTAL investments 3,475 % Of PC per Country Spain 11% UK 23% Italy 13% Belgium 12% Germany 17% Finland 9% France 15% Per country % of VC investments by VC origin CBVCB CBVC DOM VC SPAIN FINLAND FRANCE BELGIUM GERMANY ITALY UK 0% 20% 40% 60% 80% 100% 37 VICO INDUSTRY DISTRIBUTION % PC per industry TLC services 6% Software 34% Other* 3% R&D Services 2% Biotech & Pharmaceutical 21% Internet 18% ICT manufacturing 16% Per industry % of VC investments by VC origin CBVCB CBVC DOM VC Other R&D* ICT MAN Software Biotech PHARMA Web PUB TLC Internet 0% 20% 40% 60% 80% 100% 38 * Includes: aerospace, robotics, nanotech and cleantech 19

20 VICO EXIT DISTRIBUTION % of PC per Exit Inactive 1% IPO 12% Buy Back 7% Buy out 4% Liquidation 33% Acquisition 43% CBVCB Exit percentage per VC origin Trade sale Liquidation IPO Sale to other VC Buyback CBVC DOMVC 0% 20% 40% 60% 80% 100% 39 Integrated buyout database (IBD) Sample criterion: worldwide LBO transactions International dataset: 57 countries: 35% USA, 15% UK, 12% FR, 8% GE, 30% Other (3% Australia, 4% Asia, 22% EU) Main data sources: Reuters LPC Dealscan Financial & deal variables on debt syndicate level Thomson One Financial & deal variables on equity syndicate level Zephyr/Amadeus/Orbis (Bureau van Dijck) Company accounts 40 20

21 Integrated buyout database (IBD) Additional data sources: Bloomberg macro-economic variables GlobalEDGE institutional, country-specific variables Berry et al. (2010) institutional distance Factiva news articles Compustat listed company accounts 41 IBD descriptives (I) Deals per country USA United Kingdom France Germany Italy Netherlands Other EU Other non-eu

22 IBD descriptives (II) billion $ Source: IBD, Bloomberg DealScan Total LBO Loan Volume (in billion $) Total US Levered Loan Market IBD descriptives (III) 44 22

23 IBD descriptives (IV) Average No Financial Covenants 45 Current projects 23

24 Impact of VC origin on growth Cross-border VS Domestic VC? Theoretical framework used: Resource based view Results show not all VC is the same, PC backed by: Domestic VC => high growth early on CBVC => more sustainable growth rates in long run Domestic & CBVC => strongest growth 47 Impact of VC origin on growth 48 24

25 Impact of VC origin on write-off exit To achieve good performance VCs need to: Nurture the promising PC Avoid throwing good money after bad VCs face liquidation dilemma Further finance company => option of improvement Terminating => sure losses Theoretical framework used: escalation of commitment CBVCs can both have advantages or disadvantages for PC: Provide access to specific international resources, networks and experience Have a lower emotion commitment and face higher transaction costs and as they face larger geographic and cultural distances => RQ: How does CBVC as opposed to domestic VC impact the speed and probability of a write-off exit 49 Belspo Cost and terms of funding are key in (leveraged) buyout transactions Leverage, maturity, loan spreads Covenants Research question: How do PE firm characteristics and institutional environment impact the cost and terms of funding PE firm heterogeneity: reputation, experience, firm type, bank relationships Institutional environment: legal/fiscal framework 50 25

26 Belspo Many LBO transactions end up in financial distress Type and timing of exit are crucial to PE investors History shows high levels of buyout company bankruptcies after peak deal activity Research question: How do PE firm characteristics and institutional environment impact outcomes of financial distress in buyouts Impact of reputation, experience, firm type, syndicate structure, institutional environment Exit type (liquidation, bankruptcy, trade sale, ) / timing 51 Ongoing research projects VICO database Impact of slack resources on company growth, differentiating between VCand non-vc backed firms (Ine Paeleman, Tom Vanacker) Financing strategies of VC-backed firms (with Andy Heughebaert and Tom Vanacker) Differentiating between different types of VC firms Which VC firms are able to raise follow-on VC funds? With Mirjam Knockaert, Tom Vanacker Preqin database Focus on realised and unrealised returns, age, investment strategy, Management or finance paper 52 26

27 Do institutions helps VCs trust new partners? What are drivers of partner selection decisions in cross-border VC syndicates Interaction of relational and institutional embeddedness Normative, cognitive and legal institutions European dataset with 1021 transcactions covering period 1997 till Buyouts and distress Impact of multiple agency problems on outcomes of financial distress in buyouts Independent variables Fundraising PE firm Experience PE firms Management teams Banks UK dataset with 416 distressed transactions 54 27

28 Discussion How can your research be relevant for a VC/PE context? What could you do with our data? 28

29 Thanks for listening Feel free to send a mail for more questions / suggestions! 29