Determinants of success in venture capital investments: evidence from Brazil

Abstract

We investigate the determinants of the success of private equity/venture capital funds. We focus specially on a Brazilian idiosyncrasy: the participation of limited partners in the investment process through investment committees (ICs) staffed with their representatives. In principle, ICs could substitute for the ex post screening that creditors do in levered buyouts. We find that funds with ICs underperform other funds, suggesting that ICs are not a good alternative for creditors screening. We also find that funds managed by bank affiliates underperform those managed by independent organizations. Finally, retention of equity control on portfolio companies affects positively their success.

Keywords:

• Private equity
• venture capital
• investors committee
• investment exit
• investment performance

JEL classification:

• G24

Acknowledgment

Carvalho acknowledges financial support from FAPESP and CNPq.

Notes

1. Ribeiro and De Carvalho (2008) provide an overview of the Brazilian PEVC industry as of December 2004.