© cumming & johan (2013) portfolio size cumming and johan (2013 chapter 17) 1
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© Cumming & Johan (2013) Portfolio Size
Portfolio Size
Cumming and Johan (2013 Chapter 17)
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© Cumming & Johan (2013) Portfolio Size
Chapter Objectives
• Consider 4 main factors that influence the determinants of portfolio size in terms of the number of entrepreneurial firms in the venture capital fund portfolio, as well as portfolio size per fund manager per year of investment:
– The fund’s characteristics, such as type of fund, fund size and fund management firms that operate more than one fund;
– The characteristics of the entrepreneurial firms in the venture capitalist fund managers’ portfolio, including entrepreneurial firm development stage, technology and location;
– The structure and characteristics of the financing transactions, including staging, syndication and forms of finance; and
– Market conditions.
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© Cumming & Johan (2013) Portfolio Size
Issues
• How many entrepreneurial firms do VCs have in their portfolios?
• Is efficient portfolio size affected by: Venture capital fund characteristics? Entrepreneurial firm characteristics? The nature of the financing transaction? Market Conditions?
• Nonlinearities in the predicted relationships?• Are returns to scale increasing or decreasing?
TheoryData
RegressionsConclusion/Summary
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© Cumming & Johan (2013) Portfolio Size
Basic Conjecture
• Expansion of portfolio size eventually becomes unprofitable as active VC investing and managerial advice gets diluted (Kannianen and Keuschnigg, 2003,2004)
• Add another entrepreneurial firm to the VC portfolio where the projected marginal benefits (PMB) outweigh the projected marginal costs (PMC)
• Marginal benefits and marginal costs vary according to Type of entrepreneurial firm Type of venture capital firm Nature of the deal ($ amount, forms of finance, syndication, etc.)
TheoryData
RegressionsConclusion/Summary
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© Cumming & Johan (2013) Portfolio Size
Number of Entrepreneurial Firms in VC ’ s Portfolio
Benefits / Costs per Firm in Portfolio
EF 0 EF 1
PMB 0
PMB 1
PMC 0
PMC 1
Figure 17.1. Efficient Venture Capital Portfolio Size and Comparative Statics
Increase in staging frequency, proportion of early stage And high - tech firms; etc.
Increase in fundraising, improvement in market conditions; etc.
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© Cumming & Johan (2013) Portfolio Size
Hypotheses: Venture Capital Fund Characteristics
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Venture Capital
Fund Characteristics
Hypothesized Effect on PMC
Hypothesized Effect on PMB
Predicted Effect
# of Portfolio Firms
Government Funds, LSVCCs
Low cost of capital
Low PMC --- Increase
Private Independent Limited Partner Funds
High value added
High PMC
Dilution VC Effort
Low PMB Decrease
VC Fund in VC Firm with Many VC Funds
Effort Sharing Across Funds
Low PMC
Complementarities,
Co-investment
High PMB
Increase
VC Fundraising (Drawdowns) ---
More funds
High PMB Increase
VC
Fund Duration
Lower Opportunity Cost of Effort
Low PMC
Less Dilution of Effort, etc.
High PMBIncrease
# VC Managers --- High PMB Increase
TheoryData
RegressionsConclusion/Summary
© Cumming & Johan (2013) Portfolio Size
Hypotheses: Entrepreneurial Firm Characteristics and Market Conditions
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Entrepreneurial Firm
Characteristics
Hypothesized Effect on PMC
Hypothesized Effect on PMB
Predicted Effect
# of Portfolio Firms
Early Stages of Development
Higher Effort
High PMC
Specialization
High PMB Ambiguous
High-Tech
Intangible Assets, Higher Effort
High PMC
Economies of Specialization
High PMCAmbiguous
Strong Market Conditions
Ease in Fundraising Low PMC
Improved chances of exit
High PMBIncrease
TheoryData
RegressionsConclusion/Summary
© Cumming & Johan (2013) Portfolio Size
Hypotheses: Financing Characteristics
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Financing Characteristics
Hypothesized Effect on PMC
Hypothesized Effect on PMB
Predicted Effect
# of Portfolio Firms
Staging Frequency Intensive Monitoring High PMC
Dilution of VC Effort
Low PMB Decrease
Syndication Frequency Risk Sharing
Low PMC
Value Added
High PMB Increase
$ Invested / Total Entrepreneurial Capital
High Control Rights
Low PMC
High Control Rights
High PMB Increase
Convertible Securities High Opportunity Costs High PMC
Dilution of VC Effort
Low PMB Decrease
TheoryData
RegressionsConclusion/Summary
© Cumming & Johan (2013) Portfolio Size9
Number of Entrepreneurial Firms in VC ’ s Portfolio
Benefits / Costs per Firm in Portfolio
Figure 17. 2a. Comparative Statics and Nonlinearities
EF 1 EF 3
EF 0 EF 2 EF 4
P MB (Linear) PMB (Concave)
PMC 0
PMC 1
PMC 2
© Cumming & Johan (2013) Portfolio Size10
Number of Entrepreneurial Firms in VC ’ s Portfolio
Benefits / Costs per Firm in Portfolio
Figure 17.2b. Comparative Statics and Nonlinearities
EF 1 EF 3
EF 0 EF 2 EF 4
PMB 0
PMC (Convex)
PMB 1
PMB 2
PMC (Linear)
© Cumming & Johan (2013) Portfolio Size11
Number of Entrepreneurial Firms in VC ’ s Portfolio
Figure 17.3. Nonlinearities in Hypothesis Tests
Fundraising, Proportion of Early Stage Entrepreneurial Firms, etc.
The concave shape follows from the convex shape of the PMB curve and the convex shape of the PMC curve (see Figures 18 .2a and 18.2, r espectively).
The econometric tests consider nonlinearities (both concave and convex) in the effect of the hypothesized effects on venture capital por tfolio size.
The curvature of the slope is determined by grid search methods on various Box - Cox transformations.
© Cumming & Johan (2013) Portfolio Size
Canadian VC Data
• 1991-2000• 214 venture capital funds
Corporate (18)Government (15) LSVCC (29)Other (Institutional) Investors (48)Private independent Limited Partnerships (104)
• Source: Macdonald & Associates, Ltd.• Exclude funds with (possibly) unobserved investments
TheoryData
RegressionsConclusion/Summary
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© Cumming & Johan (2013) Portfolio Size13
Table 17.2a. Summary of the Data by Type of Venture Capital Fund
Variable NamesCorporate Venture Capital
Government Venture Capital
LSVCCPrivate Limited
PartnershipOther Institutional
Venture CapitalTotal
Venture Capital Fund Characteristics
Total Number of Funds 18 15 29 104 48 214
2 or more Venture Capital Funds managed by the Venture Capital Management Firm
0 3 3 14 12 32
Venture Capital Funds Raised (Drawdowns) ('000) $70,650 $48,343 $117,273 $24,307 $110,071 $61,724
# Years Fund Investments Tracked by CVCA 4.222 5.533 4.586 4.663 4.750 4.696
Investment Duration Period (Quarters) 3.625 4.850 4.043 3.959 4.073 4.030
# Venture Capital Fund Managers 6.000 8.533 6.379 5.673 8.083 7.075
Entrepreneurial Firm Characteristics
Average # Portfolio Firms 17.056 32.467 37.966 8.221 30.500 19.692
Average # Portfolio Firms / # Venture Capital Managers
2.793 7.460 6.379 2.589 4.939 4.003
Average # Portfolio Firms / # Venture Capital Managers / # Years
0.863 1.695 1.674 0.843 1.632 1.194
Early Stage 0.819 0.900 0.897 0.857 0.776 0.844
Life Sciences 0.066 0.200 0.229 0.198 0.088 0.167
Other High-Tech 0.597 0.393 0.427 0.510 0.428 0.479
Entrepreneur / Venture Capital Different Provinces 0.297 0.083 0.052 0.161 0.286 0.180
Financing Transactions Characteristics
Staging Frequency 0.560 0.471 0.497 0.544 0.489 0.521
Syndication Frequency 0.624 0.456 0.519 0.490 0.536 0.513
Venture Capital Investments / Ent. Capital 0.526 0.509 0.409 0.481 0.630 0.511
Convertible Securities 0.237 0.201 0.272 0.262 0.200 0.243
Market Conditions
MSCI Return 0.296 0.268 0.360 0.268 0.334 0.297
Note: Data over the period 1991 - 2000. Venture capital funds that invested for 1 year only in the data are excluded. Canadian Venture capitalists only. Source: Macdonald and Associates, Ltd., .
© Cumming & Johan (2013) Portfolio Size14
Table 17.2b. Summary Statistics for All Types of Venture Capital Funds in the Data (214 Funds)
Variable Names Mean Standard Deviation Skewness Kurtosis Minimum Maximum
Venture Capital Firm Characteristics
Venture Capital Funds Raised (Drawdowns) ('000) $61,724 138313 5.089 34.636 150 $1,219,360
# Years Fund Investments Tracked by CVCA 4.696 2.464 0.822 2.538 2 10
Investment Duration Period (Quarters) 4.030 2.376 0.760 2.538 0.5 9.25
# Venture Capital Fund Managers 7.075 7.505 2.804 13.965 1 48
Entrepreneurial Firm Characteristics
Average # Portfolio Firms 19.692 42.220 5.698 43.403 1 408
Average # Portfolio Firms / # Venture Capital Managers 4.003 6.626 3.966 22.686 0.091 48.4
Average # Portfolio Firms / # Venture Capital Managers / # Years 1.194 1.936 5.651 47.929 0.026 20
Early Stage 0.844 0.207 -1.731 5.801 0 1
Life Sciences 0.167 0.271 2.104 6.460 0 1
Other High-Tech 0.479 0.338 0.063 1.734 0 1
Entrepreneur / Venture Capital Different Provinces 0.180 0.277 1.749 5.112 0 1
Financing Transactions Characteristics
Staging Frequency 0.521 0.211 -0.434 2.789 0 0.933
Syndication Frequency 0.513 0.313 0.028 1.827 0 1
Venture Capital Investments / Ent. Capital 0.511 0.275 0.293 1.948 0.047 1
Convertible Securities 0.243 0.194 0.828 3.500 0 1
Market Conditions
MSCI Return 0.297 0.198 1.628 7.315 -0.067 1.192
Note: Data over the period 1991 - 2000. Venture capital funds that invested for 1 year only in the data are excluded. Canadian Venture capitalists only. Source: Macdonald and Associates, Ltd., .
© Cumming & Johan (2013) Portfolio Size15
Table 17.2c. Summary Statistics for Private Limited Partnership Funds Only (104 Funds)
Variable Names Mean Standard Deviation Skewness Kurtosis Minimum Maximum
Venture Capital Firm Characteristics
Venture Capital Funds Raised (Drawdowns) ('000) 24306.5 29385.7 1.969 6.645 600 149316
# Years Fund Investments Tracked by CVCA 4.663 2.400 0.808 2.489 2 10
Investment Duration Period (Quarters) 3.959 2.297 0.758 2.564 0.75 9.25
# Venture Capital Fund Managers 5.673 4.788 1.261 3.840 1 19
Entrepreneurial Firm Characteristics
Average # Portfolio Firms 8.221 6.987 2.152 9.167 1 42
Average # Portfolio Firms / # Venture Capital Managers 2.589 3.385 3.244 16.187 0.200 23
Average # Portfolio Firms / # Venture Capital Managers / # Years 0.843 0.877 1.680 5.519 0.048 4
Early Stage 0.857 0.213 -1.843 5.948 0.071 1
Life Sciences 0.198 0.321 1.626 4.224 0 1
Other High-Tech 0.510 0.364 -0.074 1.582 0 1
Entrepreneur / Venture Capital Different Provinces 0.161 0.236 1.638 5.152 0 1
Financing Transactions Characteristics
Staging Frequency 0.544 0.236 -0.686 2.819 0 0.933
Syndication Frequency 0.490 0.293 -0.041 1.998 0 1
Venture Capital Investments / Ent. Capital 0.481 0.283 0.485 2.032 0.047 1
Convertible Securities 0.262 0.192 0.750 3.072 0 0.875
Market Conditions
MSCI Return 0.268 0.180 1.218 5.000 -0.067 0.944
Note: Data over the period 1991 - 2000. Venture capital funds that invested for 1 year only in the data are excluded. Canadian Venture capitalists only. Source: Macdonald and Associates, Ltd., .
© Cumming & Johan (2013) Portfolio Size16
Table 17.3. Difference Tests
All 214 Funds 104 Limited Partnerships Only
Average # Portfolio
Firms Difference Test
Average # Portfolio Firms / # Venture
Capital Managers / Years Difference Test
Average # Portfolio
Firms Difference Test
Average # Portfolio Firms / # Venture
Capital Managers / Years Difference Test
Limited Partnership Venture Capital Fund 8.221-7.483***
0.843-0.102
--- --- --- ---
Corporate Venture Capital Fund 17.056 0.863 --- ---
Limited Partnership Venture Capital Fund 8.221-19.515***
0.843-2.805***
--- --- --- ---
LSVCC Fund 37.966 1.674 --- ---
Limited Partnership Venture Capital Fund 8.221-14.247***
0.843-2.566**
--- --- --- ---
Government Venture Capital Fund 32.467 1.695 --- ---
Venture Capital Mgmt. Firm with 1 Fund 17.790-5.044***
1.2140.242
6.956-6.313***
1.059-0.517
Venture Capital Mgmt. Firm with 2 or More Funds 22.311 1.166 10.611 1.166Venture Capital Fund with More than $50,000,000
Drawdowns 50.15536.749***
1.4281.446
16.40011.085***
0.574-1.598
Venture Capital Fund with Less than $50,000,000 Drawdowns 8.365 1.107 6.843 0.889
Investment duration period > 4 years 24.73014.880***
0.985-2.780***
10.33313.136***
0.623-3.100***
Investment duration period < 4 Years 10.727 1.565 4.553 1.226
# Managers >7 35.24622.060***
0.530-5.915***
12.1858.469***
0.275-5.330***
# Managers <7 12.290 1.510 6.831 1.043
Early Stage >.75 20.0671.465
1.2110.331
8.2650.308
0.8951.265
Early Stage <.75 18.429 1.136 8.048 0.638
Life Sciences >.5 10.045-12.790***
1.3180.485
9.2501.413
0.8580.061
Life Sciences <.5 20.797 1.180 8.034 0.841
Other High-Tech >.5 15.626-8.938***
1.063-1.268
7.154-4.268***
0.794-0.541
Other High-Tech <.5 23.191 1.306 9.288 0.893
Venture Capital / Entrepreneur Different Province > .15 10.452-19.352***
0.688-4.701***
7.474-2.336**
0.633-1.956*
Venture Capital / Entrepreneur Different Province < .15 24.475 1.456 8.652 0.964
Staging Frequency >.5 21.5754.470***
0.862-3.758***
9.1644.406***
0.609-3.046***
Staging Frequency <.5 17.584 1.565 6.884 1.176
Syndication Frequency >.5 15.783-9.065***
0.700-5.588***
7.833-1.406
0.588-2.706***
Syndication Frequency <.5 23.528 1.679 8.554 1.062
Venture Capital Investments / Entrepreneurial Capital >.5 21.9704.740***
1.5143.127***
7.390-2.590***
1.0992.212**
Venture Capital Investments / Entrepreneurial Capital <.5 17.730 0.919 8.762 0.676
Convertible Securities >.5 9.333-13.839***
1.2770.314
8.7000.568
1.0830.753
Convertible Securities <.5 20.643 1.186 8.170 0.818
MSCI > .25 19.7750.216
1.3351.795*
6.980-4.816***
0.761-0.879
MSCI < .25 19.585 1.014 9.415 0.922
© Cumming & Johan (2013) Portfolio Size
Variables
• Dependent Variable: Number of firms in VC fund portfolio
• Independent Variables: VC Fund Characteristics
Fund type, # funds in VC firm, duration, # VC Managers, fundraising (drawdowns)
Entrepreneurial Firm Characteristics Development stages, life sciences, other high-tech
Financing Characteristics Frequency of use of Convertible Pref Equity, Staging, Syndication, $
Invested / Firm Capital Market Conditions
TSX Index
TheoryData
RegressionsConclusion/Summary
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© Cumming & Johan (2013) Portfolio Size
Regressions
• (1) All funds together
with dummy variables for the type of fund)
• (2) Private Independent Funds Only
Different types of funds face different restrictive covenants; different objectives
• (3) For Portfolio Size and Portfolio Size / Manager / Year
TheoryData
RegressionsConclusion/Summary
18
© Cumming & Johan (2013) Portfolio Size
Box-Cox Transformation
• Grid search over various values of to allow for both concavity and convexity
• Transformation applies to independent variables, not the dependent variable
0. when )log(
; 0 when 1
),(
x
xxB
TheoryData
RegressionsConclusion/Summary
19
© Cumming & Johan (2013) Portfolio Size
Heteroscedastic Box-Cox
• Box – Cox grid-search specification as per last slide
• Also considerwhere w=fund durationpossibility of truncated observations in the data
• Likelihood dominance tests superior
• High Adjusted R2 (>.88)
)(22 ])[()( wVar
TheoryData
RegressionsConclusion/Summary
20
© Cumming & Johan (2013) Portfolio Size21
Table 17.5. Regressions with All Types of Venture Capital Funds in the Same Sample (continues on next slide)
PANEL A. Dependent Variable: # of Entrepreneurial Firms in Venture Capital Fund Portfolio (continues on next slide)
(1) Box-Cox (2) Linear (3) Box-Cox (4) Box-Cox (5) Box-Cox (6) Box-Cox
Independent Variables
Coefficient t-statistic Slope Elasticity Coefficient t-statistic Coefficient t-statistic Coefficient t-statistic Coefficient t-statistic Coefficient t-statistic
Constant 21.997 4.415*** 21.997 0.579 147.656 2.365** -10.119 -2.891*** -2.547 -0.588 -11.137 -2.700*** 1.442 0.510
Venture Capital Fund Characteristics
Corporate Venture Capital
-5.027 -2.885*** -5.027 -0.010 0.847 0.094 -7.521 -3.694*** -6.307 -3.087*** -7.016 -3.429*** -5.058 -2.875***
Government Venture Capital
1.141 0.639 1.141 0.003 0.610 0.061 6.614 3.203*** 5.547 2.659*** 6.461 3.120*** 5.809 3.232***
LSVCC 1.910 1.196 1.910 0.007 1.887 0.224 3.504 2.056** 4.760 2.707*** 5.699 3.238*** 7.811 5.210***
Private Independent Venture Capital
-10.757 -8.669*** -10.757 -0.136 -9.110 -1.416 -6.489 -4.708*** -7.870 -5.593*** -5.694 -4.092*** -6.469 -5.355***
2 or more Venture Capital Funds in the
Venture Capital Mgmt.Firm
-13.920 -15.435*** -13.920 -0.163 -6.379 -1.351 -15.670 -15.114*** -13.295 -12.637*** -15.406-
14.731***-14.615 -15.997***
Venture Capital Funds Raised
(Drawdowns) ('000)0.164 4.397*** 0.0002 0.4872 0.0002 7.698*** 0.338 3.857*** 0.346 3.697*** 0.329 3.682*** 0.145 4.050***
Venture Capital Fund Duration
-2.482 -3.985*** -0.870 -0.137 0.265 0.225 -2.633 -3.273*** 0.370 0.466 -1.698 -2.037** -2.067 -3.370***
# Venture Capital Fund Managers
7.954 20.253*** 2.210 0.515 1.818 5.748*** 8.297 16.847*** 8.468 16.346*** 8.441 16.377*** 8.313 19.372***
© Cumming & Johan (2013) Portfolio Size22
Table 17.5. Regressions with All Types of Venture Capital Funds in the Same Sample (Continued)
PANEL A. Dependent Variable: # of Entrepreneurial Firms in Venture Capital Fund Portfolio (Continued)
(1) Box-Cox (2) Linear (3) Box-Cox (4) Box-Cox (5) Box-Cox (6) Box-Cox
Independent Variables
Coefficient t-statistic Slope Elasticity Coefficient t-statistic Coefficient t-statistic Coefficient t-statistic Coefficient t-statistic Coefficient t-statistic
Entrepreneurial Firm Characteristics
Early Stage 17.833 5.305*** 12.438 0.605 15.613 1.344 --- --- --- --- --- --- --- ---
Life Sciences --- --- --- --- --- --- --- --- 0.431 0.176 --- --- 2.271 1.089
Other High-Tech --- --- --- --- --- --- -19.152 -9.454*** --- --- -16.129 -7.230*** --- ---
Entrepreneur / Venture Capital
Different Provinces-23.242 -11.909*** -21.121 -0.655 -16.779 -2.000** -26.509 -11.432*** -27.626 -11.770*** -27.880
-11.940***
-23.206 -11.756***
Financing Transactions
Characteristics
Staging Frequency -33.607 -9.741*** -25.932 -1.062 -26.072 -2.093** --- --- -40.845 -10.002*** --- --- --- ---
Syndication Frequency
-32.113 -11.494*** -25.159 -1.004 -30.731 -2.952*** --- --- --- --- --- --- -25.178 -12.816***
Venture Capital Investments / Ent.
Capital-24.588 -6.717*** -19.441 -0.764 -22.264 -1.706* --- --- 0.502 0.164 5.165 1.783* --- ---
Convertible Securities
-13.253 -4.556*** -11.679 -0.382 -10.028 -0.851 --- --- --- --- -14.257 -4.224*** -12.909 -4.443***
Market Conditions
MSCI Return -10.956 -2.632*** -9.535 -0.318 -8.607 -0.697 3.357 0.711 -7.190 -1.497 1.253 0.264 -5.120 -1.243
Returns to Scale
λ 0.413 21.405*** --- --- --- --- 0.346 15.498*** 0.340 14.543*** 0.344 14.710*** 0.414 19.778***
Adjusted R2 0.891 0.443 0.869 0.870 0.869 0.887
# Observations 214 214 214 214 214 214
© Cumming & Johan (2013) Portfolio Size23
Table 17.5. Regressions with All Types of Venture Capital Funds in the Same Sample (continues on next slide)
PANEL B. Dependent Variable: # of Entrepreneurial Firms in Venture Capital Fund Portfolio / # Venture Capital Fund Managers / Investment Years
(1) Box-Cox (2) Linear (3) Box-Cox (4) Box-Cox (5) Box-Cox (6) Box-Cox
Independent Variables
Coefficient t-statistic Slope Elasticity Coefficient t-statistic Coefficient t-statistic Coefficient t-statistic Coefficient t-statistic Coefficient t-statistic
Constant 2.917 2.860*** 2.917 2.241 8.099 2.502** 0.631 1.160 1.095 1.364 0.305 0.460 1.487 2.802***
Venture Capital Fund
Characteristics
Corporate Venture Capital
-0.471 -1.030 -0.471 -0.030 -0.376 -0.799 -0.513 -1.055 -0.519 -1.093 -0.455 -0.941 -0.426 -0.913
Government Venture Capital
0.081 0.158 0.081 0.004 0.064 0.120 0.393 0.738 0.360 0.683 0.438 0.826 0.230 0.445
LSVCC -0.206 -0.485 -0.206 -0.021 -0.212 -0.480 0.031 0.072 0.137 0.317 0.215 0.494 0.006 0.013
Private Independent Venture Capital
-0.515 -1.590 -0.516 -0.193 -0.529 -1.563 -0.266 -0.799 -0.258 -0.781 -0.187 -0.562 -0.458 -1.420
2 or more Venture Capital Funds in
the Venture Capital Mgmt. Firm
-0.160 -0.667 -0.160 -0.052 -0.194 -0.787 -0.357 -1.436 -0.223 -0.894 -0.278 -1.104 -0.172 -0.709
Venture Capital Funds Raised
(Drawdowns) ('000)0.006 0.535 0.0003 0.426 0.0002 4.628*** 0.005 0.488 0.013 0.531 0.005 0.435 0.002 0.395
© Cumming & Johan (2013) Portfolio Size24
Table 17.5. Regressions with All Types of Venture Capital Funds in the Same Sample (continued)
PANEL B. Dependent Variable: # of Entrepreneurial Firms in Venture Capital Fund Portfolio / # Venture Capital Fund Managers / Investment Years (continued)
(1) Box-Cox (2) Linear (3) Box-Cox (4) Box-Cox (5) Box-Cox (6) Box-Cox
Independent Variables
Coefficient t-statistic Slope Elasticity Coefficient t-statistic Coefficient t-statistic Coefficient t-statistic Coefficient t-statistic Coefficient t-statistic
Entrepreneurial Firm
Characteristics
Early Stage 0.648 0.895 0.508 0.720 0.487 0.790 --- --- --- --- --- --- --- ---
Life Sciences --- --- --- --- --- --- --- --- 0.379 0.723 --- --- 0.537 1.115
Other High-Tech --- --- --- --- --- --- -1.060 -2.445** --- --- -0.727 -1.574 --- ---
Entrepreneur / Venture Capital
Different Provinces-0.739 -1.517 -0.692 -0.627 -0.646 -1.459 -0.791 -1.554 -0.817 -1.565 -0.861 -1.691* -0.741 -1.552
Financing Transactions
Characteristics
Staging Frequency -2.088 -2.687*** -1.769 -2.068 -1.616 -2.495** --- --- -2.429 -2.914*** --- --- --- ---
Syndication Frequency
-2.476 -3.927*** -2.102 -2.443 -2.147 -3.956*** --- --- --- --- --- --- -1.952 -4.130***
Venture Capital Investments / Ent.
Capital-1.578 -1.949* -1.340 -1.556 -1.267 -1.810* --- --- 0.441 0.686 0.844 1.419 --- ---
Convertible Securities
-0.383 -0.572 -0.352 -0.336 -0.405 -0.648 --- --- --- --- -0.765 -1.117 -0.619 -0.954
Market Conditions
MSCI Return 1.764 2.494** 1.591 1.586 1.801 2.854*** 2.662 3.574*** 1.643 2.191** 2.513 3.349*** 2.258 3.284***
Returns to Scale
λ 0.605 2.549** --- --- --- --- 0.624 2.408** 0.499 2.037** 0.624 2.147** 0.724 2.307**
Adjusted R2 0.316 0.257 0.229 0.259 0.242 0.287
# Observations 214 214 214 214 214 214
© Cumming & Johan (2013) Portfolio Size
Summary of Some Key Results (refer also to Ch. 18)
• Empirical support for Kannianen and Keuschnigg (2003,2004): expansion of portfolio size eventually becomes unprofitable as active
VC investing and managerial advice gets diluted
• VCs have fewer firms in their portfolios when marginal costs are greater and monitoring and value added active assistance is more intensive Greater frequency of staging and syndication Private independent VCs
• VCs have more firms in their portfolios when marginal costs are lower and marginal benefits are greater VC fund in VC firm with 2 or more VC funds More VC managers Convertible securities (for private independent funds)
TheoryData
RegressionsConclusion/Summary
25
© Cumming & Johan (2013) Portfolio Size
Summary of Key Results (Con’t)
• Specialization and complementarities are important Life Sciences, Other High-Tech, Early Stage Firms Subsample of private independent funds only: different results
• Differences in the results across different types of VC funds Private independent funds have smaller portfolios Value added investors Concave function for full sample (λ =0.4) Less concave function for subsample of private independent funds
Less pronounced diminishing returns to scale (λ =0.8)
TheoryData
RegressionsConclusion/Summary
26
© Cumming & Johan (2013) Portfolio Size
Conclusions
• Importance of context: type of entrepreneurial firm, type of venture capital firm, and nature of the financial contract
• Risk-taking and capital structure affect optimal portfolio size
• Future research Differences across countries? Impact on entrepreneurial firm innovation?
TheoryData
RegressionsConclusion/Summary
27