Cross-Border Investments and Venture Capital Exits in Europe

We examine the way in which the exit mode (i.e., initial public offering – IPO, trade sale, or write-off) of venture capital (VC) investments is influenced by the additional exit opportunities brought by cross-border VC investors. We perform our analysis on a sample of 1,062 VC investments in 462 young high-tech companies in seven European countries. Our findings indicate that, controlling for firm performance, investor characteristics, and local exit conditions, the probability of exiting via trade sale is positively correlated to the additional set of mergers and acquisitions (M&A) opportunities brought by cross-border investors. A similar effect, but with weaker statistical significance, is also identified for exits by IPO, which are positively affected by IPO volumes in the countries of cross-border investors. Cross-border VC investment may, at least partially, compensate for inadequate local exit conditions. Cross-border investors can spillover the capital market activity of their home country and enhance exit options for young ventures. International syndicates are also quicker to write off their non-performing investments. Not all exit modes are equally affected by international syndication. The impact of cross-border investors on the exit mode also depends on their country of origin and, more specifically, on the exit opportunities available there. The mechanism is stronger for trade sales than for IPOs.