Venture capitalists (VCs) are generally not long term investors and prefer investments where a profitable exit can be expected to happen in the shortest time following an investment (Cummings, 2010). However, although VCs may try to time their divestments to maximize the value of any project, Gompers (1996) suggests that they also try to time their divestments in order to maximize the probability that they will receive money for the next fund. Thus, diversification of risk involves spreading investments across business opportunities which have fundamentally different bases for success. Some VCs may be pursuing risk hedging strategies to correct for business cycle shocks yet there is a lack research focused on how contextual factors impact investment strategies (Zacharakis and Meyer, 2000). As such, our inquiry focuses on the functioning of market forces with respect to stimulating VC investment into longer-term industries and examines whether VCs shift their investment preferences toward deals with longer average times to exit in response to economic recessions.
Petty, Jeffrey S.; Reynolds, Elisabeth Beck; and Gyllenlid, Andreas
"UNDERSTANDING THE DYNAMICS OF VENTURE CAPITAL INVESTMENTS THROUGH MACROECONOMIC DOWNTURNS (SUMMARY),"
Frontiers of Entrepreneurship Research: Vol. 37
, Article 10.
Available at: https://digitalknowledge.babson.edu/fer/vol37/iss1/10