The role of domestic and foreign venture capital in successful Nordic firms

Abstract: Using a unique dataset, we provide new stylized facts about the determinants of domestic and foreign venture capital (VC) in Nordic technology firms exited via a trade sale, between 1998 and 2013. We investigate the relationship between the nationality of a VC and the one of the acquirer. We examine determinants including the presence of foreign and domestic VC on the exit valuation. Differences in a firm's characteristics seem to appear depending on the presence of a foreign or a domestic VC. Foreign VCs use more monitoring mechanisms materializing with a higher number of rounds, number of investors and a stronger presence of syndication than firms with only domestic investors. The time to exit differs for firms with foreign VC exiting at an older age than others. Moreover, there is a strong presence of domestic VCs in the Nordics and a growing presence of foreign VCs. Among our eight technology sectors, foreign VCs are over-represented in firms requiring a large capital investment. Within the Nordics Norway has the strongest domestic market and Sweden has the most open market to foreign VC. In the second part, we show that there is a strong relationship between the acquirer's nationality and the VC's nationality. For example, a presence of an American VC in a firm increases the predicted probability for the company to be acquired by an American firm. Lastly, using a price to sale ratio, we present evidences of the exit multiple variations depending on the presence of a domestic or a foreign VC. The regression analysis illustrates that the presence of a domestic VC increases substantially the exit multiple. Our thesis gives a better understanding of the investment behavior of foreign and domestic VCs, of the impact of the VC's nationality and of the exit multiple.