Venture Capitalists' Exit Strategies under Information by Matthias Eckermann

By Matthias Eckermann

Enterprise capitalists (VCs) fund ventures with the purpose of reaping a capital achieve upon go out. study has pointed out details asymmetry among within traders and follow-on traders as a huge resource of friction. it's therefore within the curiosity of VCs to minimize details asymmetry at go out.

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Venture Capitalists' Exit Strategies under Information Asymmetry: Evidence from the US Venture Capital Market

Enterprise capitalists (VCs) fund ventures with the purpose of reaping a capital achieve upon go out. examine has pointed out info asymmetry among within traders and follow-on traders as a tremendous resource of friction. it's hence within the curiosity of VCs to minimize details asymmetry at go out.

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244 ^°^BIake(1999), p. 81f. 436 ^°® Bygrave (1994), p. 17; in fact, the VCF's compensation varies across funds, see Chiampou/Kallett (1989), p. 3; Gompers/Lerner (1999), p. 5 % to 3 % as regards the management fee ^°^ Perridon/Steiner (1997). p. 118f. ^® See Benston/Smith (1976), p. 216, for mutual funds in general ^°^Barry(1994), p. 7 ^^° Amit/Brander/Zott (1988). p. 441; Schmidt (2003). p. 1139; see Williamson (1990). p. 69. for transaction costs ^^'Barry (1994). p. ^^^ During the investment period, VCFs contribute their knowledge to the venture's decision making process and positively impact the venture's risk-return profile.

P. 81; Cassar (2004). p. 264 ' Bruno/Tyebjee (1985), p. 65; Allen/Udell (1998). p. 625 33 the start-up is not able to access debt financing exceeding the loans on the entrepreneur's personal assets since the firm neither owns sufficient assets nor has it a steady cash flow to collateralize and repay the debt investment. The initial assets of start-ups rather include intangible assets, such as tacit knowledge gained through R&D. In essence, the accessibility of debt financing remains limited until the venture exhibits a steady cash flow over several consecutive periods and invests in tangible assets.

The commercial take-off lowers the dependency on external funding In that the firm begins to accumulate internal funding. Firms at a later expansion stage may enter foreign markets. In order to meet the requirements of remote markets, the firm has to assimilate the original products to local demands and develop appropriate sales structures. In domestic markets, firms at this level diversify their product ranges In order to increase market shares and to meet the upcoming competition. Every strategy causes uncertainty about the market's acceptance.

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