India has become one of the major recipients of venture capital (VC) in the last decade. It is important to understand if the factors that have played an important role in influencing the VC investment in developed countries are of relevance in the context of developing countries as well. The purpose of the study is to explore the various dimensions of VC investments in India with respect to factors such as industry of investment, stage of investment, round of investment, stake acquired, geographical location, syndication, investor type, etc. and their impact on the amount of investment. A descriptive and empirical research has been carried out using VC investment deals in India during the period from 1st January, 2004 to 31st October, 2016. It is found that the amount of investment by a VC fund in an undertaking is primarily influenced by the stage of investment and the stake acquired. Investor type and industry are also found to have a significant effect on the funding amount. While economic growth and market index are found to have a very small effect on the amount of VC funding, geographical location and syndication donot seem to have any effect on the amount invested.
Purpose
A critical aspect in venture capital (VC) exiting is the choice of exit mode. This study aims to predict if venture capitalists (VCs) can take the venture capital undertaking public by identifying the impact of investment attributes, market timing and macroeconomic conditions on the choice of mode of exit for VCs.
Design/methodology/approach
The study uses logistic regression on a sample of 632 Indian VC-backed firms where VCs exited during the past two decades via initial public offers (IPOs) and other routes, including strategic sale, secondary sale and buyback.
Findings
Results suggest that growth stage investments, larger syndication size and a larger number of IPOs increase the probability of exiting through IPOs, whereas investments in the information technology and information technology-enabled services industry have a higher likelihood of being exited through other routes. Region and gross domestic product are found to be statistically insignificant in predicting the likelihood for a particular mode of exit.
Practical implications
The results have practical implications for VCs as knowledge regarding the influence of investment attributes, market timing and macroeconomic conditions can help them in deciding their exit strategy vis-à-vis mode of exit and can maximize their potential gains. The results also have implications for the potential investors, primarily the public at large and acquirers.
Originality/value
The determinants of VC exit options remain an unexplored area in the Indian context. To the best of the authors’ knowledge, the study is the first of its kind that has used investment attributes, market timing and macroeconomic conditions to predict VC exit options in India.
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