Three Essays in Venture Capital A thesis submitted to the University of Manchester for the degree of Doctor of Philosophy in the Faculty of Humanities June 2015 Fan Wang Manchester Business School CONTENTS Abstract ............................................................................................................................. 6 Declaration ........................................................................................................................ 7 Copyright Statement ......................................................................................................... 8 Dedication ......................................................................................................................... 9 Acknowledgements ......................................................................................................... 10 Chapter 1 Introduction 1.1 Motivation ................................................................................................................ 11 1.2 Thesis structure ......................................................................................................... 18 References ....................................................................................................................... 19 Chapter 2 Syndicated Venture Capital Investments: What's in it for Local Venture Capitalists? Abstract ........................................................................................................................... 21 2.1 Introduction ............................................................................................................... 22 2.2 Literature and hypothesis development .................................................................... 25 2.2.1 Theoretical framework ....................................................................................... 25 2.2.2 Syndicate experience .......................................................................................... 30 2.2.3 Syndicate experience and investment selection .................................................. 31 2.2.4 Syndicate experience and investment performance ............................................ 33 2.3. Data and methodology ............................................................................................. 34 2.3.1 Data and sample ................................................................................................. 34 2 2.3.2 Dependent variables ........................................................................................... 37 2.3.3 Explanatory variables ........................................................................................ 38 2.3.4 Control variables ................................................................................................ 39 2.3.5 Estimation models .............................................................................................. 40 2.4 Analysis ..................................................................................................................... 44 2.4.1 Local VC firms’ foreign syndicate experience ................................................... 44 2.4.3 Univariate analysis of selection and performance ............................................. 45 2.4.2 Local VC firms with foreign syndicate experience ............................................. 47 2.4.4 Investment selection ........................................................................................... 49 2.4.5 Investment performance ..................................................................................... 50 2.4.6 Robustness check ................................................................................................ 51 2.5 Conclusion ................................................................................................................ 53 References ....................................................................................................................... 55 Appendix ......................................................................................................................... 73 Chapter 3 Do Venture Capital Firms Benefit as Boards of Directors in Mature Public Companies? Abstract ........................................................................................................................... 74 3.1 Introduction ............................................................................................................... 75 3.2 Literature review and hypothesis development ........................................................ 77 3.2.1 VC characteristics and directorships ................................................................. 77 3.2.2 Directorships and VC fundraising ..................................................................... 79 3.2.3 Directorships and investment performance ....................................................... 81 3.3 Data and methodology .............................................................................................. 82 3.3.1 Data and sample ................................................................................................. 82 3 3.3.2 Dependent variables ........................................................................................... 85 3.3.3 Determinants of VC directorship ....................................................................... 86 3.3.4 Estimation models .............................................................................................. 88 3.4 Analysis ..................................................................................................................... 93 3.4.1. Directorship and VC firm characteristics ......................................................... 93 3.4.1.1 Univariate analysis ................................................................................................. 93 3.4.1.2 Multivariate analysis............................................................................................... 94 3.4.2 Directorship and fundraising ............................................................................. 96 3.4.2.1 Univariate analysis ................................................................................................. 98 3.4.2.2 Multivariate analysis............................................................................................... 99 3.4.3 Directorship and investment performance ....................................................... 101 3.4.3.1 Univariate analysis ............................................................................................... 101 3.4.3.2 Multivariate analysis............................................................................................. 102 3.5 Conclusion .............................................................................................................. 104 References ..................................................................................................................... 107 Appendix ....................................................................................................................... 120 Chapter 4 Dead Investors: What do we Know about the Failure of Venture Capital Firms? Abstract ......................................................................................................................... 122 4.1 Introduction ............................................................................................................. 123 4.2 Literature and hypothesis development .................................................................. 125 4.2.1 VC activities and failure of VC firms ............................................................... 126 4.2.1.1 Fundraising ........................................................................................................... 126 4.2.1.2 Investment ............................................................................................................. 128 4 4.2.1.3 Exits ....................................................................................................................... 129 4.2.2 VC characteristics and failure of VC firms ...................................................... 131 4.2.2.1 VC firm location .................................................................................................... 132 4.2.2.2 VC firm year of incorporation .............................................................................. 133 4.3 Data and methodology ............................................................................................ 134 4.3.1 Data and sample ............................................................................................... 134 4.3.2 Identifying failed VC firms ............................................................................... 135 4.3.3 Dependent variables ......................................................................................... 136 4.3.4 Explanatory variables ...................................................................................... 137 4.3.5 Estimation model .............................................................................................. 139 4.4 Analysis and results ................................................................................................ 141 4.4.1 Summary statistics ............................................................................................ 141 4.4.2 Univariate analysis ..........................................................................................