Cross Border Venture Capital Investments

Hortense Tarrade analyses over 200,000 venture capital (VC) investments over the past 20 years to understand the investors' motivation to select national or foreign companies into their portfolio. She compares the sensitivity of US-based, non-US and German VC firms to the availability of local deal supply and demand as well as the relative importance of their intrinsic capabilities in their investment scope decision ("Why do VC firms invest on a national, continental or global scope?"). Further, she provides an in-depth analysis of the role of geographic and cultural distance in investments by German VCs ("Why do VC firms invest in a target location rather than another?").

Examining an increasingly prevalent but under-researched phenomenon, cross-border venture capital investments, it is observed that local venture capitalists typically invest first, followed by foreign venture capitalists in later rounds. A model is developed that explains the role of a domestic venture capital investor in attracting foreign investors and which also accounts for the impact of various circumstances on the importance of this role. In our model based on analysis of nine cross-border venture capital-backed companies, local venture capitalists have several important roles in increasing the venture's cross-border investment readiness including advice to operational management and contributing contacts and local market knowledge. The importance of these roles is mitigated if the entrepreneurial team is highly experienced or if the home market is not important for the venture. The prominence of the local investor has signalling value. Finally, the local investor's international social capital facilitates the formation of cross-border syndicates. Overall, the model developed in the paper contributes to a better understanding of cross-border venture capital and in particular to the division of labour between domestic and foreign venture capitalists in international venture capital syndicates. The paper also contributes to the emerging literature on international social capital.

Cross-border venture capital (VC) investments play an important role in the scaling up of high-growth companies. However, policymakers worry that foreign VC investments transfer the majority of economic activity to the investor country. On the one hand, startups welcome the foreign capital, expertise, and networks that accompany cross-border investments. On the other hand, policymakers are concerned that cross-border investments predominantly benefit foreign economies and fail to develop the local entrepreneurial ecosystem.This paper describes a framework for how policymakers can develop a set of policies toward cross-border VC investments. The paper examines available data and trends about the role of cross-border investing, focusing on Europe, Israel, and Canada. Then, the paper explains the underlying economic challenges and develops a policy framework. The analysis shows that in addition to policies that aim to attract foreign investors, there are also important policies for the development of the domestic VC market. The analysis encompasses policies that are both financial and non-financial in nature. A core insight for policymakers is to retain a balance of initiatives, attracting foreign investors while simultaneously making sure to strengthen the country's domestic VC industry and innovation ecosystem. The mix of policies will adjust as the domestic ecosystem matures.

Cross-border venture capital has become increasingly common in recent years. Little is known, however, about the antecedents of venture capitalists' commitment to portfolio firms in international settings. We used a multiple case study to build a grounded model of interorganizational commitment in cross-border syndication networks. The model proposes that changes in a venture's prospects influence investors' commitment levels. This relationship is amplified by the remoteness of the investor and is mitigated by the investor's embeddedness in local syndication networks and the relative investment size. The model contributes to the literature on cross-border venture capital and interorganizational commitment in international settings.

Frequent and open interaction between venture capitalists (VCs) and entrepreneurs is necessary for venture capital investments to occur. Increasingly, these investments are made across jurisdictions. The vast majority of these cross-border investments are carried out in a syndicate of two or more VCs, indicating the effects of intra-industry networks needing further analysis. Using China as a model, we provide a novel multidimensional framework to explain cross-border investments in innovative ventures across developed and emerging economies. By analyzing a unique international dataset, we examine worldwide venture capital investment flows from 2000-2012 and consider the effects of geographical, cultural, and institutional proximity as well as institutional and relational trust. We find trust to mitigate the negative effects of geographical and cultural distance; where institutional trust is more relevant for investments in emerging economies, relational trust is more relevant for investments in developed economies.

Foreign investors are making larger investments in the Canadian venture capital (VC) market than Canadian investors, and Canadian VC exits are primarily M&As (Canada's Venture Capital and Private Equity Association, various years). This research provides a joint exploration of foreign venture capitalists' (VCs) participation in Canada and outcomes of VC exits. Using binary logistic regression and multivariate linear regression, this paper reports that the presence of foreign VCs in the Canadian market is accompanied with mixed exit-related outcomes. On the one hand, foreign VCs' participation is associated with higher likelihood of a successful exit through initial public offering (IPO), greater capital availability, and shorter time to exit. On the other hand, the relation between foreign VCs' participation and lower purchaser price per dollar of VC investment in exit through merger and acquisition (M&A) raises concerns about the monetary returns to Canadian investee firms and Canadian syndicate VCs. These empirical findings will help to facilitate a more comprehensive understanding of the Canadian VC market, as well as adding to the growing body of literature on cross- border VC investment.

This book focuses on the dialectics between spatio-organisational gaps and local contexts that characterise cross-border investments. "Interspatial" investments – be it mergers & acquisitions (M&A) or greenfield investments – are usually characterised by what is referred to as "otherness", i.e. organisational and cultural distances of the firms involved in relation to their regional contexts. At the same time, economic, political and socio-cultural linkages are decisive for attracting cross-border investments to regions and for providing firms with conditions supportive of their market success. As a consequence of being locked into complex structures of proximities, cross-border investments are situated in contested terrain. This terrain triggers learning processes in both regional actors and investors, which can result in the convergence of mindsets and organisational issues. This book is unique in that it combines interspace (defined as the distance between the new owner and the cross-border venture), place (the target region), interpretation (perception and understanding of the investment by the actors involved) and context (institutions, actor networks and interaction), thus offering better understanding of recent processes of globalisation. Crossing disciplinary boundaries by integrating economic geography and management studies, the volume adopts an innovative and spatially informed perspective on foreign direct investments (FDI). This perspective will be of great value to scholars, students and practitioners. The volume is inventive in its approach in that it offers fresh readings from interdisciplinary theoretical approaches and combines these with valuable empirical insights from developed as well as Emerging Economies.

We investigate the determinants of cross-border venture capital (VC) performance using a large sample of 10,205 cross-border VC investments by 1,906 foreign VC firms (VCs) in 6,535 domestic portfolio companies. We focus on the impact of a domestic country's economic freedom on the performance of both VC investments and portfolio companies using a probit model and the Cox hazard model. After controlling for other related factors of domestic countries, portfolio companies, VCs and the global VC market, as well as year and industry fixed effects, we find that a domestic country's economic freedom is crucial to cross-border VC performance. In particular, in a more economically free country, as measured by the raw values of, quartiles of or the ranking in the index of economic freedom (IEF), a foreign VC-backed portfolio company is more likely to pull off a successful exit through an IPO (initial public offering) or an M&A (merger and acquisition), and a foreign VC firm is likely to spend a shorter investment duration in the portfolio company. We also identify interesting evidence on the impact of many other level factors of domestic countries, portfolio companies, VCs and the global VC market on cross-border VC performance.

This paper studies how the presence of cross-border as opposed to domestic venture capital investors is associated with the growth of portfolio companies. For this purpose, we use a longitudinal research design and track sales, total assets and payroll expenses in 761 European technology companies from the year of initial venture capital investment up to seven years thereafter. Findings demonstrate how companies initially backed by domestic venture capital investors exhibit higher growth in the short term compared to companies backed by cross-border investors. In the medium term, companies initially backed by cross-border venture capital investors exhibit higher growth compared to companies backed by domestic investors. Finally, companies that are initially funded by a syndicate comprising both domestic and cross-border venture capital investors exhibit the highest growth. Overall, this study provides a more fine-grained understanding of the role that domestic and cross-border venture capital investors can play as their portfolio companies grow and thereby require different resources or capabilities over time.