Consequences of investment contract duration on the valuation of firms in maturity stage

What is it about?

Investment contract duration is a key parameter for venture capital funds operation. Variables influencing the decision around this parameter are usually treated in general principles in the classical financial literature leaving plenty of room for context-sensitive research. As such, we studied variables influencing investment contract duration by investigating the performance of mature Portuguese firms that have been (partially) held by venture capital funds.

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Why is it important?

This paper examines the impact of venture capital as a value-added partner to Portuguese firms in maturity stage, especially in traditional business activities and test if whether or not this is an enduring impact, assessed by valuation increase of these firms after four years of an exit. We chose this type of firms – companies in maturity – for two main reasons: 1 in Portugal and in the time-frame 1995–2004, mature firms from traditional business activities tended to use venture capital to achieve growth and go international 2 there is a lack of research relating venture capital with this stage in the lifecycle of companies, however there is a variety of works revealing the positive impact of venture capital in entrepreneurship through firm performance in early stages of development.

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