This thesis investigates the determinants of the valuation of entrepreneurial ventures. Understanding which factors drive the valuation of entrepreneurial ventures is a challenging task due to large information asymmetries, that make investors unable to distinguish good from bad firms and to correctly evaluate them. In the attempt to provide practitioners with theory- based guidelines, and to support their evaluation process, many scholars have focused on identifying factors that alleviate information asymmetries by signaling ventures’ quality. Despite the achievements of these works, our understanding of the drivers of ventures’ valuation is still limited. First, the literature on the determinants of entrepreneurial ventures valuation is extremely fragmented. Existing studies mainly provide an incomplete outlook, focusing disjointedly on specific financial milestones. This creates a compelling need for a unified framework. Second, the majority of previous studies on entrepreneurial venture valuation deals with venture capital (VC) rounds and initial public offerings (IPOs). Other financial milestones, like acquisitions or equity crowdfunding (ECF) received less attention. This is an important gap, considering that the context in which valuation is observed, the extent of information asymmetries and the factors that reduce these information asymmetries differ across different financial milestones. Third, the introduction of new digital financing channels (e.g., crowdfunding) that allow retail investors to directly invest in entrepreneurial ventures, further challenge our understanding of the drivers of valuation. This change has also increased the diversity in the sequence of financial milestones that ventures go through, with important and under-investigated implications for valuation. This work tackles the previously described gaps through a collection of papers. In Paper 1, I conduct a systematic literature review and develop a map highlighting how and why the drivers of venture valuations and their underlying theoretical lenses vary across the different milestones along the ventures’ lifecycle. The map also allows to outline new promising avenues for future research. Paper 2 deals with the dual tracking phenomenon, investigating whether going through an IPO before being targeted for an acquisition interacts with signals generated by being VC- backed in determining the valuation at acquisition. In other words, this study explores how a sequence composed of multiple signals characterized by different strength influences valuation. Results show that going through an IPO in a stock exchange different from the NYSE or NASDAQ (i.e., a weak signal) has a negative effect on the valuation at acquisition of ventures that are backed by highly reputable VCs (a strong signal). This effect is so strong that the resulting sequence of signals is not positively associated with acquisition valuation, i.e. the positive effect of the initial strong signal vanishes if firms subsequently convey a weak signal. Conversely, a sequence composed of a weak signal (backing by less reputable VCs) followed by a strong one (listing in the NYSE or NASDAQ) does have a positive effect on ventures’ valuation at acquisition. Paper 3 studies how the effectiveness of signals in determining the valuation of entrepreneurial ventures in acquisitions is moderated by the number and the characteristics of prospective acquirers interested in buying the target. Leveraging on the fact that prospective acquirers have heterogeneous information set on the target (because they operate in other industries and/or are located in countries geographically and culturally far from the target’s), I contribute to signaling theory by introducing into the construct a measure for information asymmetry. Results show that the signals’ effect on valuation at acquisition is stronger the higher the number of prospective acquirers with a limited information set on the target’s value. On the contrary, the signals’ effect is more limited if the number of prospective acquirers with the possibility to have first-hand information on the target increases. Last, in Paper 4 I investigate the effect of being VC-backed before going through an equity crowdfunding (ECF) campaign, on the pricing of entrepreneurial ventures’ shares in equity crowdfunding. This work shows that VC-backed firms obtain higher pricing than non- VC-backed firms but are not less likely to fail or more likely to perform better after the campaign. We draw from signaling theory and information processing theory and we suggest that being VC-backed before the campaign is a false signal in the ECF domain, since it does not create a separating equilibrium between high-quality and low-quality firms in the long- term. However, the crowd in the ECF campaign misinterpret it as a true signal conceding higher pricing to VC-backed companies.
Questa tesi di dottorato indaga le determinanti della valutazione di imprese giovani e innovative (“entrepreneurial venture”). Capire quali fattori determinando la valutazione di questa tipologia di aziende può rivelarsi arduo, a causa delle asimmetrie informative che rendono gli investitori incapaci di distinguere le aziende di buona qualità da quelle di cattiva qualità. La maggior parte della letteratura sull’argomento si è concentrata sull'identificazione dei fattori che alleviano queste asimmetrie informative, “segnalando” all’esterno la qualità delle imprese. Ciò nonostante, la comprensione che abbiamo ad oggi delle determinanti della valutazione di queste aziende è ancora limitata. In primo luogo, la letteratura in materia è estremamente frammentata. In secondo luogo, alcuni eventi come acquisizioni o campagne di equity crowdfunding (ECF) hanno ricevuto finora relativamente poca attenzione, nonostante stiano aumentando di rilevanza e abbiano peculiarità che meritano approfondimento. Infine, costituisce ulteriore elemento di complessità proprio l'introduzione di nuovi canali digitali (come il crowdfunding), che offrono l’opportunità ad investitori retail e non esperti di investire direttamente in questo tipo di imprese. La tesi è costituita da quattro articoli scientifici. Nel primo articolo, conduco una revisione sistematica della letteratura e sviluppo una mappa che evidenzia come le determinanti della valutazione e le relative lenti teoriche sottostanti variano lungo il ciclo di vita delle imprese. La mappa consente anche di individuare alcune promettenti linee di ricerca future. Il secondo articolo tratta il fenomeno del dual tracking, ed esamina se fare una Initial Public Offering (IPO) prima di essere acquisiti interagisca con il segnale generato dall’aver ricevuto investimenti da venture capital (VC), e come la sequenza di segnali risultante impatti sulla valutazione di imprese all’acquisizione. I risultati mostrano che fare un'IPO in un mercato diverso dal NYSE o dal NASDAQ (ovvero, generare un segnale debole) ha un effetto negativo sulla valutazione all'acquisizione di imprese che hanno ricevuto finanziamenti da VC con alta reputazione (ovvero, che avevano precedentemente generato un segnale forte). Questo effetto è così forte che la sequenza di segnali risultante non è positivamente correlata con la valutazione. Al contrario, una sequenza composta da un segnale debole (aver ricevuto investimenti da un VC con bassa reputazione) seguito da uno forte (quotazione al NYSE o al NASDAQ) ha un effetto positivo sulla valutazione. Nel terzo articolo studio come l'efficacia dei segnali nell’impattare la valutazione di imprese all’acquisizione sia influenzata dal numero e dalle caratteristiche dei potenziali acquirenti interessati ad acquisire l’impresa stessa (che sono, in altre parole, i riceventi del segnale). I risultati mostrano che l'effetto di segnale, generato dall’aver ricevuto investimenti da VC, sulla valutazione all’acquisizione è tanto più positivo quanto maggiore è il numero di potenziali acquirenti che hanno informazioni limitate sull’impresa target. Al contrario, l'effetto dei segnali è più limitato all’aumentare del numero di potenziali acquirenti informati sull’effettivo valore delle risorse della target. Infine, nel quarto articolo studio l'effetto dell’aver ricevuto finanziamenti da VC prima di lanciare una campagna di equity crowdfunding (ECF), sulla valutazione ottenuta dalle imprese alla fine della campagna. Questo lavoro mostra che le aziende VC-backed ottengono valutazioni più elevate rispetto ad aziende simili ma senza VC, ma non hanno maggiori probabilità di preformare meglio sul mercato a seguito della campagna. L’articolo suggerisce che ricevere finanziamenti da VC prima di una campagna di crowdfunding è un “segnale falso”, poiché non crea una separazione nel lungo periodo tra aziende di alta qualità e di bassa qualità.
The valuation of entrepreneurial ventures
Montanaro, Benedetta
2022/2023
Abstract
This thesis investigates the determinants of the valuation of entrepreneurial ventures. Understanding which factors drive the valuation of entrepreneurial ventures is a challenging task due to large information asymmetries, that make investors unable to distinguish good from bad firms and to correctly evaluate them. In the attempt to provide practitioners with theory- based guidelines, and to support their evaluation process, many scholars have focused on identifying factors that alleviate information asymmetries by signaling ventures’ quality. Despite the achievements of these works, our understanding of the drivers of ventures’ valuation is still limited. First, the literature on the determinants of entrepreneurial ventures valuation is extremely fragmented. Existing studies mainly provide an incomplete outlook, focusing disjointedly on specific financial milestones. This creates a compelling need for a unified framework. Second, the majority of previous studies on entrepreneurial venture valuation deals with venture capital (VC) rounds and initial public offerings (IPOs). Other financial milestones, like acquisitions or equity crowdfunding (ECF) received less attention. This is an important gap, considering that the context in which valuation is observed, the extent of information asymmetries and the factors that reduce these information asymmetries differ across different financial milestones. Third, the introduction of new digital financing channels (e.g., crowdfunding) that allow retail investors to directly invest in entrepreneurial ventures, further challenge our understanding of the drivers of valuation. This change has also increased the diversity in the sequence of financial milestones that ventures go through, with important and under-investigated implications for valuation. This work tackles the previously described gaps through a collection of papers. In Paper 1, I conduct a systematic literature review and develop a map highlighting how and why the drivers of venture valuations and their underlying theoretical lenses vary across the different milestones along the ventures’ lifecycle. The map also allows to outline new promising avenues for future research. Paper 2 deals with the dual tracking phenomenon, investigating whether going through an IPO before being targeted for an acquisition interacts with signals generated by being VC- backed in determining the valuation at acquisition. In other words, this study explores how a sequence composed of multiple signals characterized by different strength influences valuation. Results show that going through an IPO in a stock exchange different from the NYSE or NASDAQ (i.e., a weak signal) has a negative effect on the valuation at acquisition of ventures that are backed by highly reputable VCs (a strong signal). This effect is so strong that the resulting sequence of signals is not positively associated with acquisition valuation, i.e. the positive effect of the initial strong signal vanishes if firms subsequently convey a weak signal. Conversely, a sequence composed of a weak signal (backing by less reputable VCs) followed by a strong one (listing in the NYSE or NASDAQ) does have a positive effect on ventures’ valuation at acquisition. Paper 3 studies how the effectiveness of signals in determining the valuation of entrepreneurial ventures in acquisitions is moderated by the number and the characteristics of prospective acquirers interested in buying the target. Leveraging on the fact that prospective acquirers have heterogeneous information set on the target (because they operate in other industries and/or are located in countries geographically and culturally far from the target’s), I contribute to signaling theory by introducing into the construct a measure for information asymmetry. Results show that the signals’ effect on valuation at acquisition is stronger the higher the number of prospective acquirers with a limited information set on the target’s value. On the contrary, the signals’ effect is more limited if the number of prospective acquirers with the possibility to have first-hand information on the target increases. Last, in Paper 4 I investigate the effect of being VC-backed before going through an equity crowdfunding (ECF) campaign, on the pricing of entrepreneurial ventures’ shares in equity crowdfunding. This work shows that VC-backed firms obtain higher pricing than non- VC-backed firms but are not less likely to fail or more likely to perform better after the campaign. We draw from signaling theory and information processing theory and we suggest that being VC-backed before the campaign is a false signal in the ECF domain, since it does not create a separating equilibrium between high-quality and low-quality firms in the long- term. However, the crowd in the ECF campaign misinterpret it as a true signal conceding higher pricing to VC-backed companies.| File | Dimensione | Formato | |
|---|---|---|---|
|
Montanaro_Benedetta_Thesis_20221026.pdf
non accessibile
Descrizione: Tesi dottorato Benedetta Montanaro
Dimensione
4.13 MB
Formato
Adobe PDF
|
4.13 MB | Adobe PDF | Visualizza/Apri |
I documenti in POLITesi sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.
https://hdl.handle.net/10589/192167