Abstract

This paper examines how entrepreneurial ventures can overcome the problem of asymmetric information in selling their firms by leveraging their venture capital (VC) investors’ ties with their prior portfolio companies. Research suggests that a large amount of asymmetric information surrounds M&A in general, and that the problem of asymmetric information, plaguing both the acquiring firm and the firm being acquired, is particularly severe for acquisitions of entrepreneurial ventures (Capron&Shen, 2007). Having connections to the same VC gives the acquirers certain informational advantages, which can reduce the amount of information asymmetry between the acquirers and entrepreneurial ventures. This paper evaluates the characteristics of acquirer and target companies that help overcome information asymmetry during M&A transactions by leveraging their common VC tie.

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