Effect of Financial Clusters on Startup Mergers and Acquisitions

Abstract

The conventional wisdom has maintained that being in proximity to entrepreneurial ecosystems helps startups to raise financing, develop and grow. In this paper, we examine the effect of a major component of an entrepreneurial ecosystem-financial or venture capital clusters on the exit of a startup through mergers and acquisitions (M&A). We find that probability of successful exit through M&A increases if the venture capitalist invested in the startup is in a venture capital (VC) cluster. Location of the startup in a top VC cluster is not significant for success once we control for the location of the VC in a top VC cluster.Our results are robust to different specifications of the models that use different time periods, reputation of VC, industry, and the quality of the startup company. Our results provide evidence for VCs, startups and policy makers who want to better understand the components of entrepreneurial ecosystems and their relation to the M&A exits of startups.

Role of Technological Acquisition and R&D Expenditure in Innovative Investment

“…Acquisitions can have an impact on subsequent productivity and creativity via two different approaches ( Francini et al, 2022 ). Furthermore, an acquisition of another firm may be considered as an absorption of the acquired firm’s level of understanding into the knowledge base of the acquired company ( Ahluwalia and Kassicieh, 2022 ). Technology management has been one of the most essential organizational concerns to deal with a dynamic market scenario, and systematic performance management, as a source of sustainable competitive advantage, is critical for many businesses.…”

Factor analysis and prediction of startups and ways to exit based on decision tree classification models with adaptive k with SMOTE method for imbalance problem

“…Additionally, the location of startup firms plays a role. Entrepreneurial ecosystems, as described by Ahluwalia and Kassicieh (2022), contribute to high growth rates in a region. For instance, Silicon Valley, being the world's largest cluster, attracts abundant venture capital due to its access to capital.…”

“…The key factors go through the decision tree models that are analysed in aspects of business keys and described as: 1) market indicates the sector that a startup firm operates in; market conditions influence the exit strategy, as venture capital values startups higher in sectors with greater product differentiation and faster growth (Sathaworawong, et al, 2019). 2) funding total in US dollars is the total funding raised by the startup firm (Ahluwalia and Kassicieh, 2022). The total funding amount reflects the financial resources used by the startup.…”

Can Entrepreneurs Who Experienced Business Closure Bring Their New Start-Up to a Successful M&A?

“…We are careful with drawing conclusions regarding investors' decisions to fund the start-ups we examine because different investors have different preferences and aspirations for the start-ups they invest in. We follow research that considers the ability of investors to convert an investment into cash as a positive outcome (Ahluwalia and Kassicieh 2021;Nahata et al 2014). Prior research suggested that funding is closely associated with start-up growth and performance (e.g., Honjo and Kato 2019;Hyun and Lee 2022).…”

“…We follow the expanding literature that treats the exit of start-ups through M&A as a successful business outcome (Bernstein et al 2016;Ahluwalia and Kassicieh 2021;Kato et al 2022). Whereas investors have different preferences and aspirations for the firms they invest in, it is evident from the literature that investors consider their ability to convert their 2 of 17 investment into cash with a good return through M&A as a positive outcome (Ahluwalia and Kassicieh 2021;Cefis et al 2021;Nahata et al 2014). Prior research defined a successful M&A as one with a value of over $5 M (Kerr et al 2014).…”