Determinants and effects of Venture Capital and Private Equity ...

The first step required was the construction of a solid database of firms which received
some sort of external financing and for which separate financial accounts exist. Resorting to the
Italian Private Equity and Venture Capital Association newsletter, we were able to identify
names of most of the actors involved in the Italian market. Only privately held VCs and PE funds
were considered, thus excluding all the deals carried out by publicly‐controlled investors such
as agencies for regional development. This is consistent with the aim of the research of
providing evidence for the PE industry alone. We also excluded all the deals which were not
characterized by a direct involvement of the investor, such as acquiring shares of fund of funds
given a general priority of portfolio diversification. In case the information on the deals was not
published on the investors’ web sites we resort to ah‐hoc databases such as Zephir (© Bureau
Van Dijk Electronic Publishing) specialized in reporting information on M&A activity, joint
ventures and private equity deals. For the period 1997‐2007 a dataset of 730 deals resulted,
including also firms with more than one stage of financing.
As for identifying a threshold of what to consider as SMEs we looked at the criterion
established by the European Commission which states 9 :
“A medium‐sized enterprise is defined as an enterprise which employs fewer than 250
persons and whose annual turnover does not exceed EUR 50 million or whose annual balance‐
sheet total does not exceed EUR 43 million. A small enterprise is defined as an enterprise which
employs fewer than 50 persons and whose annual turnover and/or annual balance sheet total
does not exceed EUR 10 million. A micro‐enterprise is defined as an enterprise which employs
fewer than 10 persons and whose annual turnover and/or annual balance sheet total does not
exceed EUR 2 million.”
At this stage we decided to focus only on industrial firms. As suggested by Booth and Smith
(1986) public utilities and banking firms operate in regulated sector and thus, should show
different patterns in terms of firm‐specific risk. Moreover, due to the above mentioned
regulations, the latter industries tend to have limited certification costs which is, instead, one of
the issue this research tries to untangle.
The presence of leverage buy‐out operations (LBOs) implied a special attention to the
correct identification of the legal entity entitled to issue the representative balance‐sheet data.
If a reverse merger scheme occurred the target company was the entity of interest; in case of a
forward merger scheme we looked for the balance‐sheets of both NewCo and target company.
In the light of the above concerns, we filtered the group of firms just constructed obtaining
a final sample of 160 VC/PE‐backed companies. This number also reflects the availability of
9
Cfr. Commission Recommendation 2003/361/EC of 6 May 2003 concerning the definition of micro, small and
medium‐sized enterprises [Official Journal L 124 of 20.05.2003].
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