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  • 20/10/2011

    1

    Venture Capital and Private EquityResearch at Vlerick

    Prof. Sophie Manigart / Prof. Miguel Meuleman / David Devigne / Bart Van Hoe

    Vlerick Leuven Gent Management School Vlerick Leuven Gent Management School

    Overview presentation

    Intro to venture capital and private equity

    Why interesting as a research setting?

    Theoretical perspectives

    Overview datasets

    Current research projects

    Discussion

    2

  • 20/10/2011

    2

    Intro to venture capital and private equity

    Vlerick Leuven Gent Management School Vlerick Leuven Gent Management School

    Facebooks valuation (January 4, 2011)

    Goldman Sachs and Digital Sky Technologies (UsmanovsRussian investment fund) pay $500 mio for 1% stake in Facebook Facebook value = $50 bio

    3 times more than what Microsoft paid three years ago

    Company is 7 years old

    500 mio users (valuing each user at $100 !)

    Huge growth

    Comscore: Q3 2010: showed 300 bio ads

    Cooperation with Zynga (Farmville game) is very valuable

    2010: sales 2 bio, profits 400 mio (P/E: 125!)

    IPO is expected...

    4

  • 20/10/2011

    3

    Vlerick Leuven Gent Management School Vlerick Leuven Gent Management School

    Facebooks valuation (January 4, 2011)

    Vlerick Leuven Gent Management School Vlerick Leuven Gent Management School

    What do private equity players and venture capitalists do?

    Private Equity Invests in equity

    instruments of private companies

    Invests in equity related instruments

    Invests in equity instruments of private

    companies Invests in equity

    related instruments

    Replaces existing shareholders:

    Completely Buyouts Buyins

    Partially Replacement capital

    Brings additional resources Growth capital

    Venture capital Joins with other venture

    capitalist to provide risk capital in successive rounds

    The objective is to create value through capital gains.

    Take the risks on a business plan and on the growth of the

    firmMobilize and allocate capital in the economy

    6

  • 20/10/2011

    4

    Vlerick Leuven Gent Management School Vlerick Leuven Gent Management School

    Just in case

    The private equity and venture capital industry...

    Raises funds from several sources

    Invests professionally in equity and equity related

    instruments of private companies

    Grows the value of the companies

    Creates liquidity for the investments

    7

    Vlerick Leuven Gent Management School Vlerick Leuven Gent Management School

    Private equity activity in Europe

    8 |

    0

    20

    40

    60

    80

    100

    120

    Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

    Funds raised

    Investments

    Divestments at cost

    Source: EVCA/PEREP_Analytics

  • 20/10/2011

    5

    Vlerick Leuven Gent Management School Vlerick Leuven Gent Management School

    European private equity divestments exit route trends

    Index Q1 2007 = 100

    Source: EVCA/PEREP_Analytics

    0

    20

    40

    60

    80

    100

    120

    140

    160

    180

    Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

    Trade sale

    Sale to PE firms

    Write-offs

    Other

    Total divestment

    2007 2008 2009 2010 2011

    Vlerick Leuven Gent Management School Vlerick Leuven Gent Management School |

    European divestments by segment in Q2 2011

    Venture Capital

    186 m

    # companies divested

    72 m

    42 m

    Buyout & growth

    # companies divested

    1.3 bn

    1.5 bn

    0.3 bn

    Q2 2011 Top Exit routes (more than 400 Cexited)

    Secondary

    buyout (62)

    Trade Sale (50)Write-Off (27)

    Source: EVCA/PEREP_Analytics

    Sale of QuotedEquity (7)

    Trade Sale (55)

    Secondarybuyout (7)

  • 20/10/2011

    6

    Vlerick Leuven Gent Management School Vlerick Leuven Gent Management School

    PE returns

    | 19-1-2010 |11 |

    Source: Thomson Reuters / EVCA Performance Survey

    Vlerick Leuven Gent Management School Vlerick Leuven Gent Management School

    PE variation in returns

    | 19-1-2010 |12 |

    Source: Thomson Reuters / EVCA Performance Survey

    Top performing funds generate positive risk-adjusted returns

  • 20/10/2011

    7

    Vlerick Leuven Gent Management School Vlerick Leuven Gent Management School

    In Europe: many different type of players in the industry

    Funds

    FUND

    LP

    GP

    Investee companies

    Captive

    Invest-ment

    manager

    Investee companies

    Private investment co.

    Co

    Investee companies

    FUND

    Institutionalinvestor

    Listed investment firms

    Co

    Investee companies

    Stock market

    APAXCVCPermira

    3IGIMVDBAGEurazeoCapman

    Fortis Private Equity

    Family offices

    13

    Vlerick Leuven Gent Management School Vlerick Leuven Gent Management School

    The business system

    Inst

    itut

    iona

    l inv

    esto

    rs: p

    ensi

    on

    fund

    s, in

    sura

    nce

    com

    pani

    es,

    fam

    ily

    offi

    ces

    Fund offunds

    Fund offunds

    Fund

    Fund

    Fund

    Fund

    Fund

    Company

    Company

    Company

    Company

    Stock market

    Strategic acquirer

    FundOr

    Secondary Fund

    Fundraising Investment Exit

    Placementagents

    IntermediariesInvestment

    bankers14

  • 20/10/2011

    8

    Vlerick Leuven Gent Management School Vlerick Leuven Gent Management School

    Interesting research setting

    1. Information on (almost) full population

    a) Over 1 (Europe) to 2 (US) decades, currently also Asia and RoW

    b) Numerous linkages between actors

    2. Individual projects

    a) Clear begin and end dates

    b) No confounding factors: individual performance observed

    3. Extreme risk

    4. Numerous different actors, different roles,

    15

    Theoretical perspectives

  • 20/10/2011

    9

    Vlerick Leuven Gent Management School Vlerick Leuven Gent Management School

    Theoretical perspectives

    Agency theory / multiple agency theory

    Social netwerk theory

    Human capital theory

    Resource-based theory

    Decision making theory

    Conflict theory

    Institutional theory

    Finance and law

    Contracting theory

    Ethics

    17

    Vlerick Leuven Gent Management School Vlerick Leuven Gent Management School

    Agency theory / multiple agency theory

    18

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    Vlerick Leuven Gent Management School Vlerick Leuven Gent Management School

    Agency theory / reputation

    19

    Vlerick Leuven Gent Management School Vlerick Leuven Gent Management School

    Social netwerk theory

    20

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    Vlerick Leuven Gent Management School Vlerick Leuven Gent Management School

    Social netwerk theory/agency theory

    21

    Vlerick Leuven Gent Management School Vlerick Leuven Gent Management School

    Human capital theory

    22

  • 20/10/2011

    12

    Vlerick Leuven Gent Management School Vlerick Leuven Gent Management School

    Resource-based theory/agency theory

    23

    Vlerick Leuven Gent Management School Vlerick Leuven Gent Management School

    Decision making theory

    24

  • 20/10/2011

    13

    Vlerick Leuven Gent Management School Vlerick Leuven Gent Management School

    Decision making

    25

    Vlerick Leuven Gent Management School Vlerick Leuven Gent Management School

    Finance and law

    26

  • 20/10/2011

    14

    Vlerick Leuven Gent Management School Vlerick Leuven Gent Management School

    Governance

    27

    Vlerick Leuven Gent Management School Vlerick Leuven Gent Management School

    Learning theory / institutional theory

    28

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    15

    Vlerick Leuven Gent Management School Vlerick Leuven Gent Management School

    Contracting theory

    29

    Vlerick Leuven Gent Management School Vlerick Leuven Gent Management School

    Conflict theory

    30

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    16

    Vlerick Leuven Gent Management School Vlerick Leuven Gent Management School

    Ethics

    31

    Datasets used

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    17

    Vlerick Leuven Gent Management School Vlerick Leuven Gent Management School

    VICO dataset

    7 European countries:

    Belgium, France, Italy, Germany, Spain, Finland, U.K.

    Sample criteria:

    Independent at start-up

    Active in high-tech industry: aerospace, biotech, energy, ICT manufacturing, internet, nanotech, pharmaceutical, robotics, software, telecom, web publishing and other R&D

    Created between 1984-2004

    Including successful and unsuccessful investments

    => 7611 companies that did not receive venture capital

    Maximum 10 years old at initial investment

    Initial VC investment 1994 2004

    => 759 venture capital backed companies

    Full detailed description: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1904297

    33 |

    Vlerick Leuven Gent Management School Vlerick Leuven Gent Management School

    VICO data sources

    VentureXpert (1, 5)

    Investor annual reports (1, 5)

    Investor websites (1, 5)

    Press releases (1, 3, 5)

    Press clippings (1, 3, 5)

    Venture Capital Association yearbooks (1, 5)

    ZEW Foundation Panel (1, 3, 5)

    VC Pro-Database (1, 5)

    BVK Directory (1, 5)