Where entrepreneurship and finance meet : startup valuation and acquisition in the venture capital and corporate context

The purpose of this dissertation is to examine the underlying determinants of startup valuation and startup acquisition in the venture capital (VC) context, with particular focus on the role of corporate venture capital (CVC). The first studyChapter 2titled The determinants of startup valuation in the venture capital context: A systematic review and avenues for future research is a systematic review of the literature on empirically examined determinants of startup valuations in the VC context. It compiles and organizes the determinants examined in 58 selected papers in an integrative framework. This framework shows that startup valuations in the VC context are shaped by factors related to three levels, namely startup, venture capitalists, and the external environment. Moreover, the review process makes it possible for the study to highlight academic voids and to outline promising paths for future research. In the second studyChapter 3Exploring the differences in early-stage startup valuation across countries: An institutional perspective, fuzzy-set qualitative comparative analysis (fsQCA) across a sample of 13 countries is applied to explore the driving factors of the institutional setting in combination with a countrys innovativeness determining high and low early-stage startup valuations across countries. Overall, the study identifies five configurations; two configurations explain the outcome of high early-stage startup valuations, and three configurations explain the outcome of low early-stage startup valuations across countries. By applying fsQCA, the study also highlights the benefits of a configurational approach to exploring the institutional determinants in combination with a countrys innovativeness underlying early-stage startup valuations in the VC context. The third studyChapter 4titled A world of difference? The impact of corporate venture capitalists investment motivation on startup valuation combines explorative research (computer-aided text analysis and cluster analysis) and theory-testing (hierarchical linear modeling) methods to disentangle the different types of the motivation underpinning corporate venture capitalists (CVCs) investments, and their impact on startup valuations. In its explorative part, the study identifies four types of CVCs investment motivation: financial, strategic, unfocused, and analytic. In its theory-testing part, the results show that CVCs with a strategic investment motivation assign significantly lower startup valuations, while CVCs with an unfocused investment motivation assign significantly higher valuations than their peers having an analytic motivation. Hence, the studys findings stress the heterogeneity of CVCs, thereby moving beyond the dominant black and white approach of the current academic discourse that labels CVCs as either strategic or financial. The fourth studyChapter 5titled From investment to acquisition: The impact of exploration and exploitation on CVC acquisition forms a bridge to the previous study by investigating the interplay of CVC investments and startup acquisitions drawing on the framework of exploration and exploitation. The study exploits a unique and diligently constructed dataset to shed light on the phenomenon of CVC acquisitions (i.e., a corporate mother acquiring a startup funded through its CVC unit) using computer-aided text analysis and logistic regression. The findings show that corporate mothers with a greater degree of explorative (exploitative) orientation are more (less) likely to engage in a CVC acquisition; and that this effect is negatively (positively) moderated by the extent of product market relatedness between startup and the potential acquirer. Taken as a whole, this dissertation is interested in the hitherto empirically studied determinants influencing startup valuations in the VC context; how the institutional setting affects early-stage startup valuations; the differing investment motivations of CVCs and their impact on the startup valuations assigned; and the underlying drivers of CVC acquisitions. To address these aspects, the dissertation draws on multiple streams of academic literature and various analytical methods. In doing so, this dissertation provides new and important insights that enhance the understanding of the entrepreneurial process by painting a more complete picture of the factors affecting the valuation and acquisition of startups in the VC context. Notwithstanding the dissertations contributions, it also discusses its limitations in outlining promising paths for future research. In sum, this dissertation can clearly serve as a door opener for future research seeking to further illuminate these under-researched, but crucial events in the entrepreneurial process.Diese Dissertation widmet sich in vier Studien der Beantwortung von Forschungsfragen rund um den Komplex der Bewertung und Akquisition von Startups im Venture Capital- und Unternehmenskontext

How well did the stock market treat industry? Evidence from initial public offerings on the London Stock Exchange over the twentieth century.

The IPO market provides owners of firms and entrepreneurs with an exit for their equity investments and the opportunity to raise new capital. One empirical measure of how good a job the stock market has done for issuing firms over time is IPO underpricing. Yet, nothing is known about underpricing in Britain, nor, with one exception, about underpricing anywhere else before 1959. This thesis presents a new long-run IPO data set and analyses the change in underpricing over time. Contrary to my prior expectation and despite improvements in the regulation, disclosure, investor protection and underwriting of IPOs, underpricing rises in the second half of the century compared to the interwar years. This rise cannot be explained by any composition effect in the IPO sample or change in issue method. Plausible explanations for this puzzle include the rise of issuing house monopsonistic power, provincial competition, the exacerbation of a winner's curse and the resort to underpricing as an anti-takeover strategy in the second half of the last century. The thesis looks at the first of these possibilities and concludes that whilst reputable issuing houses appeared to neither lower nor exacerbate underpricing, they collectively failed to recommend the highly effective method of the tender offer to their corporate clients. The remaining hypotheses are to be researched in post-doctoral work. The thesis also examines how IPO underpricing and survival behaved during the two episodes of investor exuberance about technology stocks in Britain in the last century, the 1920s and 1990s. The jump in underpricing of "technology" IPOs in 1928-29 was as nothing to that witnessed in 1999-2000. On the other hand, survival of the 1999-2000 IPOs was much improved compared to the earlier period. Whilst the underpricing findings suggest that industry was not at all badly treated by the London stock market in the interwar years and was leaving small amounts of "money on the table" compared to thereafter, the survival evidence indicates the opposite to be true. A market such as that in 1928-29 where IPOs had less than a 50% chance of surviving to their fifth birthday as a quoted company was unacceptable

A two‐stage Bayesian network model for corporate bankruptcy prediction

We develop a Bayesian network (LASSO-BN) model for firm bankruptcy prediction. We select fnancial ratios via the Least Absolute Shrinkage Selection Operator (LASSO), establish the BN topology, and estimate model parameters. Our empirical results, based on 32,344 US firms from 1961-2018, show that the LASSO-BN model outperforms most alternative methods except the deep neural network. Crucially, the model provides a clear interpretation of its internal functionality by describing the logic of how conditional default probabilities are obtained from selected variables. Thus our model represents a major step towards interpretable machine learning models with strong performance and is relevant to investors and policymakers

Field Structuration Around New Issues: Clean Energy Entrepreneurialism in Emerging Economies

This research contributes to the literature on emerging industries by examining how an organizational field takes form as a new entrepreneurial venture arises and is legitimized. Clean energy firms face unprecedented challenges, arising in emerging economies where energy infrastructure is inadequate or non-existent. These are local contexts where there are no preexisting related industries, yet the intent is to diffuse renewable energy widely to an extent that it could spur broader local economic development.This research proposes that in the absence of legitimacy-building mimetic, normative and regulative mechanisms, unique types of endorsements legitimize and enable new firms in nascent industries.http://deepblue.lib.umich.edu/bitstream/2027.42/94215/1/1180_Adriaens.pdfhttp://deepblue.lib.umich.edu/bitstream/2027.42/94215/4/1180_DecPAdriaens.pd

The Swedish mobile Internet: A study of entrepreneurship during 1998-2005

This paper addresses entrepreneurship in the emerging Swedish mobile Internet industry. Entrepreneurship is defined as the creation of a new venture. The unique data set underlying this work consists of 249 ventures that were active in the mobile Internet industry during 1998-2004. The entry/exit pattern and their performance in 2000-2004 were studied along with VC involvement in this industry.On a population level, exits were surprisingly few, sales were growing and the number of employees was decreasing. Concerning profits, the population loses enormous amounts of money each year. Venture capital appears to have a rather negative impact on performance initially. However, the VC-backed ventures displayed strong performance improvements at the end of the investigated period

Information technology, venture capital and the stock market

Abstract This paper investigates the relationship between information technology and the capital markets. The central analytical and policy question addressed here is what kind of financial system or capital market arrangements are most conducive to fostering information technology and its use in the economy. This question is closely related to an old debate about the relative virtues of the Anglo-Saxon financial system based on stock markets, and the German/Japanese bank-based financial model. Which system should developing countries attempt to emulate to foster their economic growth and technological development? This debate has recently taken a fresh turn with the apparent emergence of the “New Economy” in the U.S. The U.S. has not only experienced fast growth of ICT industries but there has also evidently been widespread successful adoption of ICT technology in many areas of the economy. It is suggested that a major reason for the U.S. lead in this area, and the apparent European and Japanese lag, has been the very important enabling and stimulating role of the stock market