Exploring the difference in performance between UK/European venture capital funds and US venture capital funds

Arundale, Keith (2018) Exploring the difference in performance between UK/European venture capital funds and US venture capital funds. PhD thesis, University of Glasgow.

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Abstract

Investment returns of European venture capital (VC) funds have consistently underperformed US VC funds. This has led to reduced allocations of funds raised for European venture from traditional institutional investors and consequently less finance available for investment into high-growth entrepreneurial companies in Europe. The aim of this study is to investigate the factors that may give rise to a performance difference between European and US VC funds in the attempt to explain the reasons for the gap in performance. Potential factors are structural resulting from characteristics of the funds themselves, operational such as the investment practices of the VC firms which manage the funds and wider environmental such as culture and attitude to risk and the wider ecosystem in which the funds operate. The characteristics of the better performing funds in Europe and US are also investigated.
Previous studies offer incomplete explanations on the reasons for the difference in performance. Studies have focused on the UK in comparison to US and have not included continental European funds. There are no studies that have reviewed the entire investment process from sourcing deals to exiting deals, specifically contrasting Europe and the US in the context of the variables pertaining to the investment process and the impact on the fund performance gap. Previous studies have been largely quantitative in approach and influences that cannot be quantified, such as the cultural dimension, are therefore not captured in the analyses.
The study engages a critical realist philosophy and embraces an engaged scholarship, qualitative approach with some 64 semi-structured interviews with separate VC firms in UK, continental Europe and USA and 40 interviews with other stakeholders from those geographies who are related to the VC industry, including limited partner investors, entrepreneurs and advisors. Key findings of the research are that US VC firms have proportionately more partners with operational and entrepreneurial backgrounds than do European firms, they use a theme approach to identify future areas for investment, pursue a “home run” investment strategy, do most of their due diligence in house, have entrepreneurially friendly terms in their term sheets and are more proactive in achieving optimal exits for their investments than European VCs. The research has had impact in that the findings have been shared and discussed with the UK professional VC association.

Item Type: Thesis (PhD)
Qualification Level: Doctoral
Keywords: Venture capital fund performance, Venture capital investment practices, Venture capital firms, UK venture capital, European venture capital, USA venture capital.
Subjects: H Social Sciences > HG Finance
Colleges/Schools: College of Social Sciences > Adam Smith Business School > Management
Supervisor's Name: Mason, Professor Colin
Date of Award: 2018
Depositing User: Dr Keith Arundale
Unique ID: glathesis:2018-30827
Copyright: Copyright of this thesis is held by the author.
Date Deposited: 17 Oct 2018 15:13
Last Modified: 12 Nov 2018 16:46
URI: http://theses.gla.ac.uk/id/eprint/30827

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