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Commitment to capital raising for venture capital funds in India: An Application of ARDL Model

Mohammad Mustafa and Syed Shahid Mazhar

The Review of Finance and Banking, 2021, vol. 13, issue 2, 121-133

Abstract: Venture capitalists (VCs) flourish on the ability to add funds to their kitty across nations. Consequently, VCs’ ability to convince Limited Partners (LP), who are their primary source of financing, plays a critical role in the venture capital investment growth in any economy. However, it is not easy to rake in capital from an investor. LPs assess the market conditions carefully before making their capital available to the VCs. This paper examines the macro-economic variables that influence the supply of money to venture capital funds in emerging economies such as India from an LPs perspective. The empirical analysis using Autoregressive-Distributed Lag (ARDL) approach reveals that supply of capital to the VC funds in India is influenced by macro variables as well as past investment behaviours. Macro-variables such as GDP growth, interest rate spread, global liquidity, and inflation rate significantly influence the supply of capital to the VC funds in India. However, stock market liquidity does not influence the supply side of the venture capital investment. Our analysis reveals that VCs’ fund raising in India is highly influenced by their past investment relation with the LPs.

Date: 2021
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The Review of Finance and Banking is currently edited by Victor Dragota; Bogdan Negrea

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