Investment Activities of European Venture Capital Funds and the Influences of Fund Providers on their Specialization Patterns

Yiallourou, Christina (2006) Investment Activities of European Venture Capital Funds and the Influences of Fund Providers on their Specialization Patterns. [Dissertation (University of Nottingham only)] (Unpublished)

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The existing literature suggests that the specialization patterns of venture capital (VC) funds and their finance providers is an interesting aspect of the venture investment process. It is often asserted that the specialization patterns regarding their investments differ considerably according to their preferred stage of enterprises, development or industry sector indicating the heterogeneity in the way they are organized. However, there is little empirical research on the identification of the specific investments choices of VC firms and on the relation between their investment activities and their sources of finance.

VC investors form their specialized investments by placing constraints on their investment activities in order to control for the information uncertainty and manage the risks factors involved in the companies. These constraints include the specialization in the funding of specific industries or stages of the enterprises� development not only regarding favourable expected returns but also according to their different degrees of risk aversion, the organizational structure and their strategic goals.

The current dissertation is aimed at exploring the investment strategies of the different types of VC firms prior to the investment and how the preferences of sources of funds are related with the activities of the VC firms they finance. For the empirical analysis of this study, a sample of sixteen western European countries is used during the period 1987-2004. The results show that investors such as captives who could accept lower returns while they pursue a wider set of goals invest in less risky VC activities. Independent VC firms are induced by the need to enhance their reputation through their good performance and thus, focus their investments in later stage activities where the portfolio firms are closer into getting public. VC firms that are financed by fund providers with high liquidity needs such as banks are more likely to invest in later stage ventures with lower risk while when they are financed by investors with modest liquidity risks such as pension funds invest in early stage ventures. Finally VC firms backed by investors with strategic goals regarding the development of their ideas in the market such as academic institutions, invest in high technology industries.

The determinants of VC finance have important implications for providers of finance, VC firms, policymakers and academics. A better understanding of the investment strategies of VC investors will provide researchers an insight into how funds are allocated across industries, entrepreneurs with an insight into the availability of VC and potential sources of funding, providers of finance with the knowledge of how VC firms allocate their funds and VC firms with a greater understanding of their industry.

Item Type: Dissertation (University of Nottingham only)
Keywords: venture capital, specialization in investments
Depositing User: EP, Services
Date Deposited: 09 Nov 2006
Last Modified: 12 Mar 2018 11:03

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