 A dynamic model for venture capitalists’ entry–exit investment decisionsRicardo M. Ferreira and Paulo J. Pereira European Journal of Operational Research, 2021, vol. 290, issue 2, 779-789 Abstract: In this paper, we develop a dynamic model to study the entry and the exit decision for a VC facing the opportunity to invest and expand a start-up firm. Two settings are considered. A benchmark-setting, where no time constraints for exiting are in place, is compared with the one where, realistically, the VC has a finite time-window to disinvest. In both cases, we consider the trade sale (M&A) as the exit route. The model returns the entry and the exit triggers, the optimal post-money ownerships, the expected cash multiple for the VC, and also proposes a new time-adjusted version of the cash multiple, useful for measuring, ex-ante, the expected performance of the investment. The model aims to guide the VCs when analyzing their investment opportunities, considering the entire VC’s business-cycle (entry–expand–exit). Finally, the model is applied to a hypothetical, but realistic, situation in order to discuss the main outcomes. A comparative statics analysis is also performed. Keywords: Finance; Venture capital; Start-ups; Real options; Growth options (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:290:y:2021:i:2:p:779-789 DOI: 10.1016/j.ejor.2020.08.014 Access Statistics for this article European Journal of Operational Research is currently edited by Roman Slowinski, Jesus Artalejo, Jean-Charles. Billaut, Robert Dyson and Lorenzo Peccati More articles in European Journal of Operational Research from Elsevier |
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