Venture Capital Performance in China

Abstract

This study investigates the determinants of venture capital (VC) performance in China. We focus on the impact of VC reputation, political connections, and managing partner/founder’s experience on the performance of domestic and foreign VC investments. After controlling for VC age, portfolio firm age, syndicate size, VC industry competition, and a number of other factors, we find little correlation between VC reputation and investment performance in the Chinese market. In contrast, we find that the institutional characteristics such as political connections of VC firms and managing partner/founder’s prior experience as managers and investment bankers are crucial to domestic VC success, but these have little impact on foreign VC performance. In particular, if a domestic VC firm is politically connected, or a managing partner/founder has more management experience or has previously worked as an investment banker, a portfolio firm is more likely to have an IPO exit through the Chinese mainland stock markets, and these VCs are also likely to speed up a portfolio firm’s exit through IPOs in China.

Keywords: Venture Capital, Performance, Emerging Market, China

JEL Classification: G24, G28