Research On The Determinants Of Investment And Exit For VC/PE Firm

Employing the latest data in China, we analyse the determinant of the seed firminvestment and exit, we emphasis on three factors in this field: the policy support ofgovernment, the ability and effort of VC/PE firm, and the learning ability of VC/PEfirm.By constructing a game theory model between government and VC/PE firm, weconclude that subject to both player’s profit and cost function, the government shoulddesign a mechanic to encourage the seed stage investment by VC/PE firm. Under theconstrained policy support from government, VC/PE firm will adjust its effort put to theseed firm and its proportional allocated to the seed investment by take the policysupport and its own exit performance into consideration. In the long-run, the policysupport, the range chosen for the seed investment proportion, the probability of effortchosen in the first round investment will have an effect on the adjustment of seedinvestment proportion.We describe the industry profile to provide a complete knowledge to this field, andto provide some basic knowledge for the later chapters, and also to show a proof for thedata selection in the following parts.Employing Generalized Linear Model, Logistic Model, Zero-inflated NegativeBinomial Model, we analyze the effort of the government on the seed investment andfind that the support from government has a positive effect in encouraging it. For theVC/PE firm, the age of the institution, limited partnership, the size of the fund, theportfolio have difficult effect on the seed investment behavior. The age and amountshow a negative effect, the other two has a positive one. Under the condition of policysupport, we find that in the long-term, VC/PE can learn from its investmentperformance and the finding shows that the adjustment is positive, i.e. the VC/PE willshift its proportion up after long-time’s investment experience.After that, we analyze the determinate of exit and find that seed firm will encountermore difficulty when exiting by IPO or M&A. which means seed investment proportionhas a negative effect on the IPO exit proportion, and seed firm is inclined to beliquidation before exit through IPO or M&A. By different type of Logistic regression,we find that the IPO and M&A have different determinants. As time goes on, the exit performance improves. By a Heckman Two-stage Model, we find that the VC/PE is wellcompensated by taking risk from seed investment, which explain its willingness ofinvesting in seed firm. Form long-run, return form exit will increase, not only shown onthe IPO proportion and higher successful exit probability, but also higher multiples.