Analysing the variables that affect the returns on venture capital firms' investments

This thesis sets out to investigate the variables that affect the returns on first venture capital investments, with evidence from 1980 to 1999. This is conditioned on either an initial public offering or trade sale exit. The results have shown that company age and experience of the venture capital firms have significant impacts on the investments' returns. The experience of venture capital firm has a positive relation with annualised return, which means a more experienced venture capital firm would cause a higher annualised return. The age of company has a negative relationship with annualised return, which means a younger company leads to a higher annualised return.

Surprisingly, stage financing is not significant in this study. The period of investment and percentage of equity share also do not have significant relations with the annualised return. These insignificant results could be attributed to either the significant correlation among most of the independent variables in the model, or the noisy measures for some independent variables in the model.

The original regression model was insignificant, but it becomes significant when the sample is separated into the negative and positive returns sub-samples. This provides some explanations for its insignificance by an opposing effect in both sub-samples, which would cancel each other.