Profitability Factors of Private Equity Funds in Emerging Capital Markets

Demand for investments in private equity and venture capital funds has grown significantly over the past three decades. So now it appears to be important for investors to research deeply which factors mostly influence private equity and venture capital business profitability. Within this work profitability of funds is considered indirectly through types of private equity and venture capital exits. Exit from investment for private equity and venture capital investors is one of the main indicators of the effectiveness of their capital investments. The research is devoted to the study of factors influencing private equity and venture capital exits all around the world. The research methodology is based on the use of logit model and a dummy variable which equals to “1” if exit out of investment occurred through subsequent IPO and equals to “0” if exit was through M&A transaction as a dependent variable. Thus, the model shows the probability of IPO or M&A exit depending on various explanatory variables. As independent variables were chosen holding period, round number, aggregated amount raised, number of investors, average age of funds, portfolio company’s industry, geographic region where it is located and the time period to which exit date belongs. The study was conducted on a sample of 15,770 private equity and venture capital-backed transactions each with information about subsequent exit all around the world in time period 1991-2019 with reference to exit year. The empirical findings of this paper are mostly similar to the other research articles results on the topics considering private equity and venture capital exits and profitability of this business. From the stated in this work hypotheses: • Hypothesis about positive influence of longer holding period on the probability of IPO exit wasn’t confirmed; • Hypotheses about influence of industry, geographic region and time period differences on the exit strategy were confirmed; • Hypothesis about positive influence of large number of investors on the probability of IPO exit wasn’t confirmed.