Private Debt and the Role of Venture Capital and Private Equity Sponsors

Axel Buchner (), Susanne Espenlaub (), Arif Khurshed () and Abdulkadir Mohamed ()
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Axel Buchner: ESCP Business School, 14059 Berlin, Germany
Susanne Espenlaub: Alliance Manchester Business School, University of Manchester, Manchester M13 9PL, United Kingdom
Arif Khurshed: Alliance Manchester Business School, University of Manchester, Manchester M13 9PL, United Kingdom
Abdulkadir Mohamed: Leeds University Business School, University of Leeds, Leeds LS2 9JT, United Kingdom

Management Science, 2024, vol. 70, issue 1, 372-395

Abstract: This is the first study examining the key role played by venture capital and private equity (VCPE) firms in the private debt market. Private debt funds invest in companies owned (sponsored) by VCPEs and in other companies without VCPE sponsors. Using novel data, we find that private debt without VCPE sponsors generates a premium. Further analysis shows that this sponsorless premium compensates for higher risk and costs of risk mitigation as sponsorless lenders adopt a more hands-on approach emulating VCPE sponsors’ roles. Our results are robust and provide important lessons for investors and investee firms in private debt, venture lending, and VCPE.

Keywords: private debt; direct lending; venture capital and private equity (VCPE); funds; internal rate of return (IRR); sponsor (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:70:y:2024:i:1:p:372-395

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