Venture Capital (VC) was born as a local business. Compared to the alternative financing options young ventures can recur to, VCs contribute to startups’ growth through value-adding services such as coaching and monitoring, that require frequent contacts and thus benefit from geographical proximity. Nevertheless, in the last decades positive trends of VC industry internationalization were observed worldwide. Literature gained interest towards the topic and tried to investigate the determinants of VC firms’ decisions to invest cross-border. This work provides novel contribution to the research stream on the determinants of cross-border VC activity, by analysing the effect of the domestic VC market saturation. VC market saturation depends on the interplay between the supply and demand for capital; its level increases contextually to an excess of supply, or a shortage of demand. Our central argument is that the increased difficulty to find domestic investment opportunities, and the likely increase in the average price to be paid to secure a deal in the home market, may force VC firms to seek for more attractive investment opportunities abroad. Given the heterogenous nature of their objectives and scopes, independent VCs (IVCs), corporate VCs (CVCs) and government VCs (GVCs) may react differently to changes in the level of domestic VC market saturation. This work examines the impact of domestic VC market saturation on the likelihood to undertake cross-border investments of the different investor types (IVC, CVC, GVC) using a dataset of realized and unrealized European VC-venture ties between 2007 and 2018, derived from the VICO database. Results highlight that domestic VC market saturation can be considered a determinant of IVC cross-border activity: as domestic saturation increases, the probability to invest abroad becomes larger to the expense of a decrease in the willingness to invest domestically. The same relation does not hold for CVCs and GVCs, whose cross-border decisions seem not to be influenced by saturation. Quite interestingly, whereas domestic CVC investments are not driven by domestic saturation as well, GVCs’ likelihood to fund ventures within national borders is positively affected by an increase of domestic VC market saturation, probably due to the countercyclical nature of their activities.
Il Venture Capital (VC) è un business tradizionalmente locale. Rispetto alle opzioni di finanziamento alternative a cui le giovani imprese possono ricorrere, i VC contribuiscono alla crescita delle startup attraverso servizi a valore aggiunto come coaching e monitoring, che richiedono contatti frequenti e quindi beneficiano della vicinanza geografica. Tuttavia, nelle ultime decadi sono state osservate in tutto il mondo tendenze positive di internazionalizzazione del settore VC. La letteratura ha maturato interesse verso l'argomento e ha indagato le determinanti delle decisioni di investire oltre confine. Questo lavoro fornisce un nuovo contributo al filone di ricerca sulle determinanti di investimento oltre confine, analizzando l'effetto della saturazione del mercato VC domestico. La saturazione del mercato VC dipende dall'interazione tra domanda e offerta di capitale; il suo livello aumenta contestualmente a un eccesso di offerta o a una carenza di domanda. L’argomentazione centrale di questa tesi è che la maggiore difficoltà a trovare opportunità di investimento locali e il probabile aumento del prezzo medio da pagare per assicurarsi un deal nel mercato interno possono costringere gli operatori VC a cercare opportunità di investimento più attrattive all'estero. Data la natura eterogenea dei loro obiettivi e ambiti di investimento, i VC indipendenti (IVC), corporate (CVC) e governativi (GVC) possono reagire diversamente a variazioni del livello di saturazione domestica. Questo lavoro esamina l'impatto della saturazione del mercato VC nazionale sulla probabilità di intraprendere investimenti oltre confine dei diversi investitori (IVC, CVC, GVC) analizzando un dataset di investimenti potenziali (realizzati e non) in Europa tra il 2007 ed il 2018, derivanti dal database VICO. I risultati evidenziano che la saturazione del mercato VC domestico può essere considerata una determinante dell'attività internazionale degli IVC: all'aumentare della saturazione, la probabilità di investire all'estero diventa maggiore a scapito di una diminuzione della volontà di investire a livello nazionale. La stessa relazione non vale per i CVC e i GVC, le cui decisioni di investire all’estero non sembrano essere influenzate dalla saturazione. Mentre per i CVC anche gli investimenti domestici non sono guidati dalla saturazione, è interessante notare che la probabilità dei GVC di finanziare imprese all'interno dei confini nazionali è influenzata positivamente da un aumento del livello domestico di saturazione, probabilmente a causa della natura anticiclica delle loro attività.
Cross-border venture capital investments : the role of domestic market saturation
MEACCI, LEONARDO;Pagliochini, Franco Saverio
2020/2021
Abstract
Venture Capital (VC) was born as a local business. Compared to the alternative financing options young ventures can recur to, VCs contribute to startups’ growth through value-adding services such as coaching and monitoring, that require frequent contacts and thus benefit from geographical proximity. Nevertheless, in the last decades positive trends of VC industry internationalization were observed worldwide. Literature gained interest towards the topic and tried to investigate the determinants of VC firms’ decisions to invest cross-border. This work provides novel contribution to the research stream on the determinants of cross-border VC activity, by analysing the effect of the domestic VC market saturation. VC market saturation depends on the interplay between the supply and demand for capital; its level increases contextually to an excess of supply, or a shortage of demand. Our central argument is that the increased difficulty to find domestic investment opportunities, and the likely increase in the average price to be paid to secure a deal in the home market, may force VC firms to seek for more attractive investment opportunities abroad. Given the heterogenous nature of their objectives and scopes, independent VCs (IVCs), corporate VCs (CVCs) and government VCs (GVCs) may react differently to changes in the level of domestic VC market saturation. This work examines the impact of domestic VC market saturation on the likelihood to undertake cross-border investments of the different investor types (IVC, CVC, GVC) using a dataset of realized and unrealized European VC-venture ties between 2007 and 2018, derived from the VICO database. Results highlight that domestic VC market saturation can be considered a determinant of IVC cross-border activity: as domestic saturation increases, the probability to invest abroad becomes larger to the expense of a decrease in the willingness to invest domestically. The same relation does not hold for CVCs and GVCs, whose cross-border decisions seem not to be influenced by saturation. Quite interestingly, whereas domestic CVC investments are not driven by domestic saturation as well, GVCs’ likelihood to fund ventures within national borders is positively affected by an increase of domestic VC market saturation, probably due to the countercyclical nature of their activities.| File | Dimensione | Formato | |
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https://hdl.handle.net/10589/182042