Accounting and Finance 54 (2014) 123

When U.S. venture capital ventures abroad

Khaled Abdoua, Oscar Varelab
a

Division of Engineering, Business and Computing, Penn State University, Berks Campus,
Reading, PA, USA*
b
Department of Economics and Finance, College of Business Administration, University of
Texas at El Paso, El Paso, TX, USA

Abstract
Older, more experienced and smaller U.S. venture capital rms are most
probable to sacrice proximate distance for new opportunities in foreign, and
mostly mature, portfolio companies. These companies are treated dierently
than the domestic ones, as U.S. venture capital rms collaborate with and
delegate monitoring to foreign partners, rather than stage or syndicate.
Successful outcomes mostly occur in more mature, non-hi-tech, portfolio
companies that receive more nancing per round. Our results are robust to the
investee countrys openness and industry classication, stage of the investment
and possible sample selection problems.
Key words: Venture capital; International; Globalization
JEL classication: G15, G24, G32, G34
doi: 10.1111/ac.12005

1. Introduction
Numerous reasons besides superior returns motivate venture capital (VC)
investments abroad. These include a good business environment, with private
property rights and regulatory stability, high expected economic growth and broad
economic integration. Locals investing in their own markets also motivates VCs
foreign investments, particularly when high-end human capital, vibrant patent
We thank the journals editor Robert Fa and the anonymous referee for their in-depth
and thoughtful comments that signicantly improved this paper. Any remaining errors
are the responsibility of the authors.
Received 26 September 2011; accepted 11 September 2012 by Robert Fa (Editor).
*Correction added on 10 March 2014 after rst publication online on 2 November 2012:
Khaled Abdous aliation has now been corrected.
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counts and ecient stock markets exist. This paper examines within the context of
these investments the characteristics of U.S. venture capital rms that invest
abroad, in terms of reputation and size, how they manage these longer distance
investments and the characteristics that accompany their foreign successes.
Guler and Guillen (2004) nd that the international investment decision depends
on superior returns, and Guler and Guillen (2010b) nd that VCs international
investments are more likely when foreign markets are innovative, have regulatory
stability, protect investors and facilitate exit. Venture capitals foreign investments
lag that of locals according to Makela and Maula (2008), as locals harbour
knowledge of value to foreign VCs. Aizenman and Kendall (2008) nd that VCs are
attracted to locations with high-end human capital, a better business environment,
high levels of military expenditure, and deeper nancial markets, and Alhorr et al.
(2008) that a countrys promotion of broad economic integration inuences
investments by foreign VCs. Higher economic growth and patent counts and more
viable stock markets, also attract foreign VCs, according to Schertler and Tykvova
(2010). Venture capital investments are also benecial to portfolio companies,
especially when made in the portfolio companys international target markets,
according to Makela and Maula (2005).1
Notwithstanding these motives, a paradox exists when VCs invest abroad.
Lerner (1995) points to the importance for monitoring that VCs have close
proximity (a few miles distance) to their portfolio companies. Close proximity
is important not just for these investments, but also for trade, as gravity models
from international economics show an inverse relation between distance and
trade between countries. Makela and Maula (2006) nd that distance is also
inversely related to a VCs continued commitment to its portfolio company
when its prospects decline.2
Opportunities from foreign investing by VCs are associated with greater
distances between investor and investee,3 such that dealing with these
investments may require dierent approaches than those for domestic
investments. There is also a recognized gap in research into how VC manages
1
Other ancillary research on the VCs decision to go abroad include Wright et al. (2002)
who show that U.S. VC rms in India adapt to the local market conditions, and
Madhavan and Iriyama (2009) who nd that immigrant groups in home and host
countries forming transnational technical communities serve to enhance the globalization of VC. Makela and Maula (2005) also nd that foreign venture capitalists can
legitimize an unknown new venture in a foreign target market so long as this market
does not dier from the foreign investors home market.
2

Distance may become marginally less important of an issue given better communication infrastructures. Petersen and Rajan (2002) nd that the distance between
commercial banks and small business customers becomes less important with technological advancements.
3
Sheahan (2004) shows that VCs invested $761 million into Business Process
Outsourcing (oshoring) startups in the rst half of 2004, up from $495 million during
the same period in 2003.

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foreign investments. Wright et al. (2005) state that our review of the
literature indicates that there is a major research gap in relation to work dealing
with the crossing of country borders by VC rms. Since then, we have
observed research on motives that drive VC to invest abroad, but little on how
they manage their foreign investments.
Rin et al. (2011) noted in their comprehensive survey of VC research that
many questions still need to be answered regarding international money ows in
the VC industry. Schertler and Tykvova (2009, p. 14) mention areas for
international VC research that correspond to the present research as elucidated
below.
More specically, it would be interesting to know whether country factors or
sector factors drive the composition of venture capitalists portfolios. In addition,
the entrance strategy of venture capitalists has not received much attention in the
academic literature. In particular, the analysis of cross-border syndication, i.e. the
joint investment by domestic and foreign VCs, would deserve a profound
investigation, since managing a syndicate across borders is usually much more
dicult than managing a local syndicate. Another interesting issue we have not
discussed in this paper is the success of cross-border investments in terms of the
performance of the portfolio companies as well as the venture capitalists returns.

This research addresses this gap in examining reputation and size factors in
U.S. venture capital rms going abroad, and the processes that they use in
managing their longer distance investments in the foreign environment, as
well as some of the characteristics accompanying their successes. Key
contributions of this research include the following. Smaller size U.S. VCs
typically go international with investments that are less syndicated, perhaps
because they lack knowledge of partners. They possibly grandstand with
riskier investments and do not appear to use staging as a monitoring
mechanism, as they nance higher amounts per round over fewer rounds.
They appear to prefer to collaborate with foreign counterparts by delegating
monitoring to foreign partners, and they are not likely to invest in high-tech
portfolio companies, possibly because of diculty in monitoring them.
Success abroad is more probable for U.S. venture capital rms that are older,
more experienced and smaller, and which invest in mature portfolio
companies. Success also improves with increased presence on the board of
directors of the international portfolio companies and decreased reliance on
foreign VC counterparts.
The remainder of this paper is divided as follows. Section 2 describes
additional literature on VCs management of foreign investments, while Section
3 discusses the methodology and research questions. Section 4 discusses the
sample data, limitations and summary statistics. Section 5 presents the
empirical results, and Section 6 examines their robustness for country
dierences, industry classications and nancing stages. Section 7 concludes
the paper.
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2. Literature
The literature on the role of the VCs reputation and size in investing abroad
is reviewed below. Also, as our research examines how going international
aects the VCs relationship with its more distant portfolio companies, we
review literature on the monitoring, delegating and syndicating activities of
VCs in this new environment.
2.1. Experience and size
Fernhaber and McDougall-Covin (2009) nd a positive relation between
reputation and going international for VCs, for the former may promote the
latter as home country advantages can promote foreign expansion. Guler and
Guillen (2010a) report that VCs local status is transferable to foreign markets
and inuence the decision to invest abroad. Hall and Tu (2003) use a sample of
VC rms in the UK in 2000 and nd that size is positively related to their decision
to go overseas and that young VCs are less likely to invest internationally.
2.2. Monitoring, delegating and syndicating
Monitoring appears related more to uncertainty rather than to performance
or lack thereof. Sapienza et al. (1996) nd that portfolio companies are not
more highly monitored when their performance is poor. And consistent with
Lerner (1995), they nd that VCs engage in more oversight in early stages and
when greater uncertainties exist. Bygrave (1987, 1988) nds that uncertainty is
directly correlated with co-investing4 and information sharing among VCs.
And VCs can control risk and reduce uncertainty by specializing in a stage and
industry, according to Norton and Tenenbaum (1993) and Bygrave (1987,
1988).
United States venture capital rms appear to behave dierently towards their
portfolio companies depending on whether they are domestic or international.
Wang et al. (2002) nd that participation by Singapore-based VCs in portfolio
companies lagged U.S. VCs. Sapienza et al. (1996) compare VC governance in
the United States, UK, the Netherlands and France and conclude that VCs are
driven by dierent factors in dierent markets. Pruthi et al. (2003) nd that
foreign VCs are more likely to be involved at the strategic level and domestic
ones at the operational.
Venture capitalists serve as members of the board of directors and typically
have power to re senior management, according to Gorman and Sahlman
(1989). Lerner (1995) nds that VC representation increases around events such
as CEO turnover.
4

Co-investing refers to the sharing of investments among a group of VCs. Typically,

there is a lead VC who invites other VCs to participate in an investment.
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Overall, the VCs decision to invest internationally is dependent on superior

returns, business environment, nancial markets development and quality of
human capital. Distance can be a factor in terms of the commitments made and
foreign involvement can follow local involvement. Monitoring is related more
to uncertainty than to performance, and VCs behave dierently towards their
international portfolio companies.
The present research probes more deeply the question about the VCs size and
reputation as factors in the foreign investment decision, and its practice of
monitoring, staging and syndicating foreign portfolio companies.
3. Methodology and research questions
3.1. Logistic regressions
Logistic regression INTPROB concerns the probability of a U.S. VC going
international, while INTSUC concerns the probability that a U.S. VCs
international investment is a success, that is, the international portfolio
company goes public. Our 1990 to 2004 sample includes sub-sample 1
consisting of United States-based VC funds that invest in non-U.S. international portfolio companies and sub-sample 2 consisting of VC funds that invest
only in U.S. portfolio companies. The independent variables in both regressions measure characteristics of the VC, including size and reputation, and its
management of the portfolio company, including its monitoring, delegating
and syndicating activities.
INTPROB is specied as:
INTL a b1 FMAGE b2 COAGE b3 RNDS b4 RNDS$
b5 NOFM=NOFD b6 FDINV b7 INDb8 EXEC%
b9 FOR% b10 NOBOD b1113 STAGES
b1423 INDUSTRY e

where dependent variable INTL is a dummy variable equal to one if the

portfolio company is an international portfolio company funded by a U.S.
venture capital fund, and zero if it is a domestic company. This regression
requires two sub-samples, one of international and another of domestic
portfolio companies, such that it uses sub-samples 1 and 2.
INTSUC is specied as:
SUCCESS a b1 FMAGE b2 COAGE b3 RNDS b4 RNDS$
b5 NOFM=NOFD b6 FDINV b7 IND b8 EXEC%
b9 FOR% b10 NOBOD b1113 STAGES
b1423 INDUSTRY e
2
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where SUCCESS is a dummy variable equal to one if the international

portfolio company has gone public and zero otherwise.5 This regression also
requires two sub-samples, one of successful and another of unsuccessful
international portfolio companies and thus uses only sub-sample 1, with its
sub-division into successful and unsuccessful portfolio companies.
The independent variables in these regressions are the following. FMAGE is
the age of the VC rm, measured in years and serves as a proxy for the VCs
experience, and COAGE is the age of the portfolio company, measured in years
and serves as a control variable for the establishment/experience of the
portfolio company. FDINV is the average size of the VC funds investment (in
U.S. $ millions) in its portfolio companies and serves as a proxy for the funds
size. RNDS is the number of rounds the VC used to fund the portfolio
company, and RNDS$ is the average nancing amount (in U.S. $ millions) per
round distributed to the portfolio company. These variables serve as proxies for
monitoring. NOFM (NOFD) is the number of VC rms (funds) involved in
funding the portfolio company and serve as proxies for syndicating. IND is a
control dummy variable equal to one if the VC specializes in the high-tech
industry and zero otherwise.
The following variables are added for robustness checks or further controls,
as explained later. EXEC% is the percentage of the non-managing relative to
the total number of members of the board of directors of the portfolio
company, and FOR% is the percentage of foreign VC funds relative to the total
number of VC funds invested in the portfolio company. These variables serve
as proxies for delegating. NOBOD is the number of members on the board of
directors. STAGES consists of three dummy variables that control for the
dierent stages of nancing that the portfolio companies receive, including
start-up and seed stage, early stage and later stage (stages beyond the later
stage were omitted to avoid multicolliniarity). INDUSTRY is a group of nine
dummy variables that control for the dierent industries of the portfolio
companies. These substitute for IND in subsequent robustness tests and include
biotechnology, communications and media, computer hardware, computer
software and services, computer related, industrial and energy, internet specic,
medical health and semiconductors. Finally, is the random error term.
3.2. Research questions
Our research questions concern the experience and size of the VCs that
engage in international investments, and their monitoring, delegating and
syndicating approaches towards their international portfolio companies.
5

We do not use returns to measure success because VentureXpert has very minimal
information about returns on the portfolio rm level and returns on the non-public
portfolio company are not available. Moreover, on the VC fund/rm level, the returns
are not available on a rm-specic basis due to privacy issues.
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Formal hypotheses are not stated due to the lack of a theoretical framework
underpinning our research questions. Nevertheless, the possible signs for the
coecients in both the INTPROB and INTSUC regressions are summarized in
Table 1 and discussed below.
3.2.1. Experience
Experienced VCs may better handle riskier international investments, with
their greater knowledge and reputation compared with their inexperienced
counterparts. In our literature review, Fernhaber and McDougall-Covin (2009)
nd a positive relationship, and Guler and Guillen (2010a) nd that local status is
transferable to foreign markets. Unseasoned VCs may be too busy accumulating
knowledge and networking to manage/monitor their domestic portfolio companies to bother with the international investment. Hall and Tu (2003) nd that
young VCs are less likely to invest internationally. While these arguments suggest
that experienced VCs are more international, it is possible that grandstanding6
may motivate the inexperienced ones to go international. Thus, in INTPROB,
the sign for FMAGE (the age of the VC rm), which Lerner (1994b) used to
dierentiate between seasoned and inexperienced VCs, is uncertain. However,
the VCs experience may be positively related to its international success,
suggesting that in INTSUC, the sign for FMAGE is positive.
3.2.2. Size
Larger size VC funds, with possibly less absolute risk aversion, may be more
willing and able to take risks relative to smaller ones, including the added
risks of international investments. In our literature review, Hall and Tu (2003)
nd that size of VCs is positively related to their decision to go overseas. Yet,
smaller funds may invest internationally to enhance returns and growth,
beyond any grandstanding motives.7 Thus, in INTPROB, the sign for FDINV
is uncertain. However, size may be positively related to successful international investments, given that larger size VC funds may be larger in part
because of past successes, suggesting that in INTSUC, the sign for FDINV is
positive.
6
Gompers (1996) grandstanding hypothesis suggests that companies backed by less
seasoned VC rms are younger and more under-priced compared to those backed by
experienced VC rms. The younger VCs grandstand to quickly distinguish themselves
from the experienced. From that view, inexperienced VCs will take more risks to earn
the good reputation quickly.
7

Wilson and Williams (2000) nd mixed results between countries regarding the growth
of smaller banks. Their results show that in Italy smaller banks grow faster than larger
banks, however no signicant relation was found between size and growth in France,
Germany and the UK.
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Table 1
Signs for independent variables in LOGIT regressions INTPROB and INTSUC
LOGIT regression

INTPROB

INTSUC

Independent variables

Dependent variable: INTL

Dependent variable:
SUCCESS

Uncertain going international

may require experience, but
inexperience may also go
international to grandstand
Control variable

>0, experience positively

related to international
success, as experience
generally correlates with
success
Control variable

Uncertain greater investment

uncertainty leads to more
monitoring, but longer
international distances may
lead to delegating instead

Uncertain successful
ventures have same
monitoring/delegating
tradeos already noted
in INTPROB regression

Uncertain syndication with

more rms and funds shares
international investments risk,
but VCs may lack knowledge
of international partners to
syndicate with

Uncertain same reason

as for INTPROB
regression

Uncertain size positively

related to decision to go
international, but beyond
grandstanding smaller
inexperienced funds may go
international to enhance returns
Control variable

>0, larger size funds may

be larger due to prior
successes

Experience variables
FMAGE age in
years of VC, proxy
for VC experience

COAGE age in years of

portfolio co., control variable
for establishment/experience
of portfolio co.
Monitoring variables
RNDS no of rounds
the VC used to fund
portfolio co.
RNDS$ ave. nancing
(in U.S. $ millions)
per round to
portfolio co.
Syndication variables
NOFM no. of VC rms
involved in funding the
portfolio co.
NOFD no. of VC funds
involved in funding the
portfolio co.
Size variable
FDINV ave. size
of VC funds investment
(in U.S. $ millions) in
its portfolio co.

IND control dummy = 1 if

VC specializes in high-tech
industry, =0 otherwise
Delegation variables
EXEC% % of non-managing
to total members of board of
directors of portfolio co.
FOR% % of foreign
VC funds to total
no. of VC funds
invested in portfolio co.

Uncertain monitoring and

delegating are imperfect
substitutes, such that the sign
for these proxies for delegating
is uncertain

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Control variable

Uncertain same reason

as for INTPROB
regression

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Table 1 (continued)
LOGIT regression INTPROB is specied as:
INTL = a + b1FMAGE + b2COAGE + b3RNDS + b4RNDS$ + b5NOFM/NOFD
+ b6FDINV + b7IND + b8EXEC% + b9FOR% + b10NOBOD + b1113STAGES
+ b1423INDUSTRY + b2425COUNTRY + e
where dependent variable INTL is a dummy variable equal to one if the portfolio company
is an international portfolio company funded by a U.S. VC fund, and zero if it is a domestic
company. LOGIT regression INTSUC is specied as:
SUCCESS = a + b1FMAGE + b2COAGE + b3RNDS + b4RNDS$ + b5NOFM/NOFD
+ b6FDINV + b7IND + b8EXEC% + b9FOR% + b10NOBOD
+ b1113STAGES + b1423INDUSTRY + b2425COUNTRY + e
where SUCCESS is a dummy variable equal to one if the international portfolio company
has gone public and zero otherwise.

3.2.3. Monitoring
Monitoring techniques include the number of rounds and average dollar
nancing per round. After each round, the portfolio company is expected to
update the VC, as a pre-condition to advancing to the next round. Greater
investment uncertainty motivates more monitoring, according to Gompers
(1995). In our literature review, Sapienza et al. (1996), consistent with Lerner
(1995), nd that greater uncertainties result in more VC oversight. We might
therefore expect closer monitoring by VCs of their international portfolio
companies. The uncertainties derived from the greater distances within an
international setting for such investments may necessitate a greater number of
rounds (RNDS) and less funding per round (RNDS$). However, in the
international setting, VCs may decide to use alternative approaches to monitor,
such as delegating responsibility, making its eect on monitoring uncertain.
Thus, in INTPROB, the signs for RNDS and RNDS$ are uncertain. In
addition, United States-based VCs with successful international investments
may either monitor or delegate, suggesting that in INTSUC, the signs for these
variables are also uncertain.
3.2.4. Delegating
A VC delegates when it collaborates and assigns its monitoring function to a
counterpart, which in an international investment is a foreign counterpart.
Bushman et al. (2000) show that the value of delegation is linked with private
information, which may be relevant for a VC encountering (in an international
setting) language barriers, cultural dierences and/or ignorance of local law.
The proportion of non-managing to total number of directors (EXEC%) will
be smaller if delegation occurs, because only the agent VC will sit on the board
of directors. Also, the percentage of foreign VC funds to the total number of
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funds invested in the portfolio company (FOR%) will be higher if more

delegation occurs in the foreign setting, because the foreign VC funds act as the
collaborators with the domestic one.
There is uncertainty over the VCs choice between monitoring and delegating
for international investments, as these may be imperfect substitutes, suggesting
that in INTPROB, the signs for EXEC% and FOR% are uncertain. Similarly,
United States-based VCs with successful international investments may either
monitor or delegate, suggesting that in INTSUC, the signs for EXEC% and
FOR% are also uncertain.
3.2.5. Syndicating
Venture capitalists normally share resources through network interaction and
bear more risk when investing internationally. Lerner (1994a) nds that VCs are
willing to accept lower returns for lower variances and may as a result participate
in syndicates. He also shows that syndicate members may certify investment
decisions (provide second opinions) in the rst and subsequent rounds of funding.
In our literature review, Bygrave (1987, 1988) correlates the level of uncertainty
directly with co-investing and information sharing among VCs.
Venture capitalists may try to syndicate their international investments to
divide risk with more NOFM and NOFDs, as more rms and funds may certify
investments through information sharing, possibly to a greater extent than for
domestic ones. The problem is that they may have fewer syndicate partners
internationally, owing to international inexperience. Thus, the signs for NOFM
and NOFD in the INTPROB and INTSUC regressions are uncertain.
4. Sample data, limitations and summary statistics
The portfolio company segment of the Securities Data Corporations (SDC)
VentureXpert database is the source for our data. The 1 January 1990 to 31
December 2004 study period includes the dot.com growth and bubble periods,
the 1990s robust U.S. economy (including a U.S. government budget surplus),
and the period after 11 September 2001 (including the war on terror and U.S.
government decits).8 We have excluded the periods leading up to and after the
housing market crash in the U.S., and the recession that followed, as the story
concerning these events is not yet complete. Nevertheless, the nal sample is
suciently large, consisting of 18,372 companies, with 4,307 international
8
Admittedly, a large percent of VC activity occurred over the dot.com bubble period,
from 1997 to 2000. During this period, a large number of new VC rms appeared, many
small in size, and this fact could aect our results. In addition, having our sample
restricted to a period that includes the bust of the dot.com bubble certainly is a
limitation of this study. Also, the sample includes some portfolio companies that were
established in 2005 which means that VCs invested in those companies while they were
start-ups.

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11

portfolio companies funded by one or more United States-based VC funds and

14,065 U.S. domestic companies similarly funded.
Two sub-samples were obtained from VentureXpert databases portfolio
company segment, which dierentiates between rms, funds and portfolio
companies variables. One was restricted to U.S. venture capital funds that
invest in international portfolio companies (located outside the U.S.) and
another to those that invest only in U.S. portfolio companies. The database
comes from voluntary submission of data by venture capitalists, with
companies submitting conicting data omitted from analysis. Another limitation is the databases absence of a complete set of accounting variables for the
portfolio companies, limiting the scope of our investigation. A look-back or
backll bias is also possible in the data set, if the SDC lls in prior
information for companies that are currently reporting in our sample.
Table 2 categorizes the frequency of the U.S. VCs 4,307 foreign investments
by 27 countries. The UK is most frequently targeted, with 821 portfolio
companies, or 19.06 per cent of the total, possibly driven by its presence as an
international nancial centre with no language barriers for U.S. VCs. Canada
ranks second with 416 companies or 9.66 per cent of the total. France, South
Korea, Germany, Israel, Australia, India, Japan, Sweden, China, Ireland and
the Netherlands each account for at least 2 per cent of the total and collectively
for 59.73 per cent. Brazil and Argentina are the only Latin American countries
among the 27 country group.
The univariate descriptive statistics, unreported to conserve space, show that
international investments by VCs have higher success rates compared with
domestic ones, possibly motivating these investments.9 International portfolio
companies are also monitored less often, and experience fewer but more
intensely nanced rounds. Venture capitalists syndicate international investments less than domestic ones, and those that invest internationally are smaller
than those that do not. Venture capitalists that invest internationally are less
involved in high-tech investments and delegate monitoring to one or a few
foreign VC funds, instead of syndicating. They also have more seats on the
board of directors of the investee for their international investments compared
with domestic ones. These dierences are all signicantly dierent.
Correlation coecients among the variables show that nancing rounds are
signicantly positively correlated with syndicationmeasured by the number of
VC rms and funds in funding the portfolio companyin both the U.S. and
international samples. These measures of syndication also have signicant
positive correlation with each other, making them good substitutes. The higher
the number of VC rms and funds in funding a portfolio company, the higher
the percentage of non-managing directors and foreign VC funds. The size of the
9
The details concerning the descriptive statistics are available from the authors upon
request. In the analysis of these statistics, the hypotheses of equal means and variances
are rejected for all variables, except for COAGE for means and FMAGE for variances.

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Table 2
Country rankings of U.S.-based venture capital rms international investments and number of
portfolio companies per country
Rank

Country

Number of portfolio companies

Percentage of total

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
27

United Kingdom
Canada
France
South Korea
Germany
Israel
Australia
India
Japan
Sweden
China
Ireland
Netherlands
Finland
Switzerland
Singapore
Belgium
Hong Kong
Denmark
Taiwan
Italy
Spain
Brazil
Norway
Poland
Austria
New Zealand
Argentina
Other
Total International
United States
Total

821
416
408
281
268
232
224
158
138
138
122
96
92
79
77
73
71
59
55
53
49
43
32
30
29
28
24
21
190
4307
14,065
18,372

19.06
9.66
9.47
6.52
6.22
5.39
5.20
3.67
3.20
3.20
2.83
2.23
2.14
1.83
1.79
1.69
1.65
1.37
1.28
1.23
1.14
1.00
0.74
0.70
0.67
0.65
0.56
0.49
4.41
100.00

VCs fund and percentage of non-managing directors and number of rms,

respectively, have negative signicant correlations for the international sample,
suggesting that bigger funds delegate more and have fewer rms in the
international setting. Other correlation coecients are insignicant.
5. Empirical results
5.1. INTPROB on VCs international versus domestic portfolio companies
The results for two specications of regression INTPROB appear in Table 3,
Panel A. The rst specication includes variable NOFM and the second NOFD,
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0.0003
0.0000
0.0000
0.0000

0.0025
0.2709
0.0089
0.0847
0.65
10391.32
0.00

0.0000
0.0000
0.0011
0.0007
0.0000
0.0000

p-Value

2.0590
0.0226
0.0079
0.0594
0.0028
0.2020

Coecient
p-Value

0.0000
0.0003
0.0000
0.0000
0.0000

0.1624
0.0027
0.2841
0.0089
0.0840
0.65
10386.84
0.00

0.0000
0.0000
0.0016
0.0271
0.0000

2.1550
0.0235
0.0076
0.0399
0.0027

Coecient

0.0128
0.2456
0.0157
0.0102
0.13
298.18

2.4340
0.0153
0.0301
0.0273
0.0020
0.0604

Coecient

0.00

0.0061
0.0150
0.0000
0.0000

0.0000
0.0003
0.0000
0.3438
0.0010
0.0018

p-Value

0.0356
0.0127
0.2397
0.0159
0.0099
0.12
293.44

2.3813
0.0147
0.0299
0.0228
0.0021

Coecient

(2)

(1)

(1)

(2)

Panel B
INTSUC dependent variable SUCCESS

Panel A
INTPROB dependent variable INTL

0.00

0.0288
0.0068
0.0174
0.0000
0.0000

0.0000
0.0005
0.0000
0.4469
0.0006

p-Value

LOGIT regression INTPROB results concern the probability of U.S. based VCs investments being in international portfolio companies, with
INTL as the dependent variable, for two specications (Panel A); and LOGIT regression INTSUC results concern the probability of success for
U.S. based VCs investments in international portfolio companies, with SUCCESS as the dependent variable, for two specications (Panel B) The
variable denitions are as follows. INTL is a dummy variable that equals one if the portfolio company is an international portfolio company
funded by a U.S. venture capital (VC) fund, and zero if it is a domestic company. FMAGE is the age in years of the VC rm and serves as a proxy
for the VCs experience. COAGE is the age in years of the portfolio company and serves as a control variable for the establishment/experience of
the portfolio company. RNDS is the number of rounds the VC used to fund the portfolio company. RNDS$ is the average nancing amount (in
U.S. $ millions) per round distributed to the portfolio company. NOFM/NOFD is the number of VC rms/funds involved in funding the
portfolio company. FDINV is the average size of the VC funds investment (in U.S. $ millions) in its portfolio companies. IND is a control
dummy variable equal to one if the VC specializes in the high-tech industry, and zero otherwise. EXEC% is the percentage of the nonmanaging relative to the total number of members of the board of directors of the portfolio company. FOR% is the percentage of foreign VC
funds relative to the total number of VC funds invested in the portfolio company.

CONSTANT
FMAGE
COAGE
RNDS
RNDS$
NOFM
NOFD
FDINV
IND
EXEC%
FOR%
Nagelkerke R-Square
Chi-square

Specication

Regression

Table 3
LOGIT regressions INTPROB and INTSUC results

K. Abdou, O. Varela/Accounting and Finance 54 (2014) 123

13

14

K. Abdou, O. Varela/Accounting and Finance 54 (2014) 123

as these serve as dierent proxies for syndication. The Nagelkerke R-square for
both specications is 65 per cent.
FMAGE is positive and statistically signicant in both specications,
suggesting that more experienced VC rms are more likely to invest in
international portfolio companies. It does not appear that inexperienced VCs
grandstand to develop reputation by investing internationally. The control
variable COAGE is also positive and marginally signicant, suggesting
that VCs target international investments in more mature portfolio
companies.
The two (uncorrelated) monitoring variables are statistically signicant in
both specications, with a negative sign for RNDS and positive for RNDS$.
These signs indicate an international monitoring style where VCs provide
higher nancing per round over fewer number of rounds. While fewer
interim reports by the portfolio company are submitted to the VC, it is
likely that each report is more intensely reviewed. Thus, it does not appear
that VCs use greater levels of staging for international investments as a
monitoring mechanism.
International investments are less syndicated than domestic investments, as
the signs on the number for VC rms (NOFM) and VC funds (NOFD) are
negative and signicant in both specications. This result may reect the
relative inexperience of VCs in international investments and/or their lack of
knowledge of international partners with which to syndicate.
The size of VC funds measured by the US dollar value of their investments
(FDINV) is statistically signicant and negative in both specications,
suggesting consistent with the summary statistics that smaller size funds invest
more internationally. This result does not support the idea that larger size funds
are more willing to invest internationally because their absolute risk aversion is
less. Rather, it supports the idea that smaller size funds grandstand through
riskier international investments, possibly motivated by their desire to establish
themselves and grow quickly by enhancing returns.
The high-tech industry dummy variable (IND) is statistically signicant and
negative in both specications, suggesting that VCs are not likely to invest in
high-tech international portfolio companies, possibly because of some added
diculty in monitoring hi-tech companies.
EXEC% has a signicant negative and FOR% a signicant positive sign in
both specications. U.S. venture capitalists do not reserve many seats on the
board of directors for their international portfolio companies, but instead
involve more foreign VC funds in them. It appears that U.S. venture capitalists
prefer to collaborate with foreign counterparts, rather than sit on the board,
and thus delegate monitoring to foreign partner(s).

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15

5.2. INTSUC on VCs successful international portfolio companies

The results for two specications of regression INTSUC (similar to the
specications in INTPROB) appear in Table 3, Panel B. The Nagelkerke
R-square for both specications is 13 and 12 per cent, respectively.
FMAGE is positive and signicant in all specications, such that older VCs
have higher probabilities of SUCCESS with international portfolio companies. This result, consistent with literature, suggests that experience adds value
to the portfolio company. COAGE is also positive and signicant in all
specications, suggesting that more mature portfolio companies increase the
probability of SUCCESS. RNDS is statistically insignicant in all specications, while RNDS$ is positive and statistically signicant. It appears that
higher nancing of the international portfolio company per round (RNDS)
improves the likelihood of success, independent of the number of rounds
(RNDS).
U.S. VCs appear to syndicate more in the case of successful international
investments, as NOFM and NOFD are positive and signicant in both
specications, although in INTPROB international investments are on the
whole less syndicated than domestic ones.
Smaller VC funds appear to be more successful in investing internationally,
as the sign for fund size (FDINV) is negative and signicant. The portfolio
companys status as high-tech reduces the probability of success, as the sign of
IND is negative and signicant. These results are consistent with our nding
that smaller funds are more likely to invest internationally, and the view that
high-tech companies are harder to control than other companies with more
tangible assets.
The delegation variables in both specications are statistically signicant,
with a positive coecient for EXEC% and negative for FOR%. Thus, the
likelihood of success for the international portfolio companies is higher the
higher EXEC% and lower FOR%. Venture capitalists must increase their
presence on the board of directors of international portfolio companies and
decrease their reliance on foreign VC counterparts for greater success.
Interestingly, our prior nding that international investments have lower
EXEC% and higher FOR% components contrasts with their need for success,
as the delegation characteristics for investing internationally contrast with the
requirements for success.
It is possible that there is a selection bias in the INTSUC results insofar as
there may exist an endogenous matching of successful international portfolio
companies with more experienced VCs.10 To address this problem, we
employed the Heckman correction on the basic INTSUC model, with robust

10

We thank the journals anonymous referee for pointing out this problem and
suggesting the Heckman correction procedure.
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K. Abdou, O. Varela/Accounting and Finance 54 (2014) 123

results, available from the authors upon request, that mostly continue to hold
even in the presence of such endogeneity.11
6. Robustness checks
6.1. Country dierences
Cross-sectional dierences in governance structures among the countries that
VCs are investing in may produce biased results. To address this possibility, we
classify our samples international investments into three country groupings,
based on openness to foreign investors, and level of nancial and legal
developments. GROUP 1 is least open and developed, and includes Latin
American and African countries in our sample. GROUP 2 is more open and
developed, and includes India, China, Eastern European and Southeast Asian
countries. GROUP 3 is the most open and developed, and includes Japan,
Hong Kong, Canada, Australia, Western European countries, and other
oshore investment hubs. While there may be disagreement about a particular
countrys category, we believe that most would agree overall on GROUP 3 and
on GROUP 1, especially for African countries.12
Our regressions are repeated with two new dummy variablesGROUP 1 and
GROUP 2with GROUP 3 serving as the base. The results for INTPROB in
Table 4, Panel A show that these dummy variables are not signicant
regardless of specication. It appears that the portfolio companys country
does not aect the previously reported probability of VCs making international
investments. The results for INTSUC in Table 4, Panel B show that GROUP 2
is positive and signicant, suggesting a higher probability of success in Asia,
India and Eastern Europe than in the other country groupings. Our results are
generally robust as it does not appear that the portfolio companys country is a
factor in the probability of a VC going international or of its portfolio
companys success. A further robustness check was conducted for country

11

The only dierences are that RNDS became signicant and NOFM became
insignicant. The Mills ratio is signicant. The results are unreported to conserve space.

12
The actual contracts that VCs have in dierent countries may not be signicantly
dierent. Kaplan et al. (2003) nd that U.S. style contracts are implemented regardless
of legal regime the more experienced the U.S. VC. Financing styles, however, may dier
between high enforcement, common law countries and low enforcement, civil law
countries. Lerner and Schoar (2005) nd that private equity often use convertible
preferred stock with covenants in the former and common stock and debt, with equity
and board control, in the latter. High enforcement countries also tend to have higher
valuations.

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0.0005
0.0000
0.0000
0.0000
0.9951
0.9844

0.0022
0.3332
0.0090
0.0870
23.5709
22.2428
0.7281
12076.18
0.0000

0.0000
0.0000
0.0734
0.1047
0.0000
0.0000

p-Value

2.5680
0.0233
0.0050
0.0305
0.0027
0.1696

Coecient

0.0000
0.0005
0.0000
0.0000
0.0000
0.9951
0.9844

0.1413
0.0023
0.3415
0.0090
0.0866
23.5670
22.2684
0.7285
12086.01
0.0000

0.0000
0.0000
0.0884
0.6654
0.0000

p-Value

2.6518
0.0240
0.0047
0.0084
0.0027

Coecient

0.0121
0.3081
0.0170
0.0094
0.1275
1.1465
0.1662
400.57

2.9565
0.0168
0.0307
0.0014
0.0021
0.0800

Coecient

0.0000

0.0111
0.0027
0.0000
0.0000
0.7139
0.0000

0.0000
0.0001
0.0000
0.9598
0.0009
0.0000

p-Value

0.0490
0.0118
0.2996
0.0172
0.0090
0.1365
1.1276
0.1633
393.24

2.8799
0.0160
0.0304
0.0049
0.0022

Coecient

(2)

(1)

(1)

(2)

Panel B
INTSUC dependent variable SUCCESS

Panel A
INTPROB dependent variable INTL

0.0000

0.0029
0.0131
0.0035
0.0000
0.0000
0.6938
0.0000

0.0000
0.0002
0.0000
0.8687
0.0005

p-Value

See the footnote to Table 3 for more detailed discussion of the regressions and variable denitions. The robustness test for INTPROB for two
specications (Panel A) and INTSUC for two specications (Panel B) concerns the grouping of countries based on the openness of the countries
in the sample to foreign investors, and the level of their nancial and legal developments. GROUP 1 is least open and developed, and includes
Latin American and African countries in our sample. GROUP 2 is more open and developed, and includes India, China, Eastern European and
Southeast Asian countries. GROUP 3 serves as the base and is the most open and developed, and includes Japan, Hong Kong, Canada,
Australia, Western European countries, and other oshore investment hubs.

Constant
FMAGE
COAGE
RNDS
RNDS$
NOFM
NOFD
FDINV
IND
EXEC%
FOR%
GROUP 1
GROUP 2
Nagelkerke R-Square
Chi-square

Specication

Regression

Table 4
Country grouping robustness checks results for LOGIT regressions INTPROB and INTSUC

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17

18

K. Abdou, O. Varela/Accounting and Finance 54 (2014) 123

dierences using country-specic data instead of country dummy variables.

The results, with details available from the authors upon request, continue to
be generally robust to these additional tests.13
6.2. Industry and nancing stage
Venture capitalists investing in the rst round may behave dierently than
those investing in subsequent rounds, making it possible that the specic stage
in the nancing of the portfolio company may produce dierent results. While
we have tested for the number of rounds, we have not done so for the specic
stage in the nancing of the portfolio company. To examine the robustness of
our results to this factor, we add dummy variables to distinguish between
rounds, representing the start-up and seed stage, the early stage, and the later
stage (other stages are omitted to avoid multicollinearity). We also add as a
robustness test the nine main industry classication categories available in our
VentureXpert database, to control for any unobserved heterogeneity through
this more detailed industry classication. The results in Table 5, Panel A, are
generally robust to our earlier ndings.
6.3. Heckman correction for selection bias
It is possible that there exists selection bias for the sub-sample used for
INTSUC, as there may exist an endogenous matching of successful companies
with more experienced VCs.14 We employ the Heckman correction (using
STATA) for the SUCCESS sub-sample to address this problem. The results,
shown in Table 5, Panel B are similar to the robustness check results for the
SUCCESS sub-sample in Table 5, Panel A.2. The main dierence is that, after
correcting for endogeneity, the number of rms (NOFM) and fund investments
(FDINV) are signicant at the 5 per cent level. The results in Table 5, Panel B
are generally robust to our earlier ndings, although Rho is signicant at the 1
The results, unreported to conserve space, suggest that country groupings at least
with respect to intercept dummies are not that critical to determining the probability
that U.S. venture capitalists will invest internationally, or that if they do, they will
experience success. It thus seemed unlikely that introducing slope coecients would
produce signicantly dierent results. Also, while there was some possibility that
discrete shifts in the parameters generating the data were possible for the intercept for
the given country group dierences, we were less condent about how country
dierences might aect the sensitivity of the independent variables (such as monitoring,
syndication or delegation) on the probability of going international or being successful
through changes in the slope parameters. Nevertheless, we tested for the sake of
completeness the use of slope dummy variables in the INTSUC regression, and found
that all their respective coecients were insignicant.

13

14

We thank the journals anonymous referee for pointing out this problem and
suggesting the Heckman correction procedure.
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INTL
Coecient

Dependent variable

Independent variables

Constant
FMAGE
COAGE
RNDS
RNDS$
NOFM
FDINV
EXEC%
FOR%
NOBOD
GROUP 1
GROUP 2
STAGES
Startup seed
Early stage
Later stage
INDUSTRY
Biotechnology
Communications and media
Computer hardware

1. INTPROB

Regression

0.000
0.000
0.373
0.023
0.000
0.000
0.000
0.002
0.000
0.000
0.995
0.000
0.000
0.000
0.000
0.579
0.312
0.003

1.577
0.023
0.002
0.043
0.002
0.148
0.003
0.004
0.086
0.061
23.051
0.695
0.308
0.778
0.620
0.082
0.121
0.503

p-Value

Panel A: Stages and industry

Robustness

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Accounting and Finance 2012 AFAANZ
0.095
0.188
0.134

0.902
0.785
0.099

2.275
0.011
0.022
0.024
0.001
0.027
0.006
0.009
0.008
0.112
0.358
0.124

Coecient

SUCCESS

2. INTSUC

0.674
0.332
0.619

0.000
0.000
0.501

0.000
0.011
0.000
0.435
0.249
0.207
0.177
0.000
0.000
0.000
0.302
0.330

p-Value

0.028
0.140
0.030

0.460
0.393
0.015

1.764
0.018
0.012
0.005
0.000
0.026
0.006
0.005
0.003
0.063
0.056
0.601

Coecient

SUCCESS

INTSUC

0.822
0.196
0.840

0.000
0.000
0.860

0.000
0.000
0.000
0.758
0.210
0.030
0.031
0.000
0.001
0.000
0.775
0.000

p-Value

(continued)

Panel B: Heckman
correction

Table 5
Stages and industry robustness check results for LOGIT regression INTPROB and INTSUC, and Heckman Correction for INTSUC

K. Abdou, O. Varela/Accounting and Finance 54 (2014) 123

19

 2012 The Authors

Accounting and Finance 2012 AFAANZ
p-Value
0.000
0.058
0.126
0.011
0.000
0.013

1. INTPROB
INTL
Coecient
0.668
0.262
0.230
0.268
0.646
0.344
0.685
11098.43

Regression

Dependent variable

Independent variables

Computer software and services

Consumer related
Industrial energy
Internet specic
Medical health
Semiconductors
Nagelkerke R-square
Chi-square
Rho
Log-likelihood ratio

0.712
0.421
0.001
0.582
0.053
0.056
0.203
495.481

Coecient

SUCCESS

2. INTSUC

0.000

0.000
0.062
0.998
0.002
0.804
0.797

p-Value

0.887
1665.898

0.362
0.243
0.003
0.343
0.016
0.113

Coecient

SUCCESS

INTSUC

Panel B: Heckman
correction

0.000
0.000

0.001
0.056
0.979
0.001
0.893
0.357

p-Value

See the footnote to Table 3 for more detailed discussion of the regressions and variable denitions. The robustness test for INTPROB (Panel A.1)
and INTSUC (Panel A.2) concerns the (1) stages of nancing, with STAGES consisting of three dummy variables that control for the dierent
stages of nancing that the portfolio companies receive, that is, the Startup seed, Early and Later stages (stages beyond the later stage were
omitted to avoid multicolliniarity); and (2) more specicity regarding industry categories, with INDUSTRY consisting of a group of nine dummy
variables that control for the dierent industries of the portfolio companies, including biotechnology, communications and media, computer
hardware, computer software and services, computer related, industrial and energy, internet specic, medical health and semiconductors. The
robustness tests for INTSUC (Panel B) concerns the Heckman two-stage correction for possible endogenous matching in the INTSUC regression
between success and more experienced VCs. The Heckman correction methodology is Heckmans two-stage model, where the rst model is a
Probit model. Rho is signicant at the 1 per cent level which shows that there is it is likely that better companies are matched with more
experienced VCs. NOBOD is the number of members on the board of directors.

0.000

Panel A: Stages and industry

Robustness

Table 5 (continued)

20
K. Abdou, O. Varela/Accounting and Finance 54 (2014) 123

K. Abdou, O. Varela/Accounting and Finance 54 (2014) 123

21

per cent level, suggesting that is it is likely that better companies are matched
with more experienced VCs.
7. Conclusions
When venture capitalists venture abroad, they often sacrice proximate
distance for new opportunities by investing in foreign portfolio companies. In our
research, we assume that these opportunities are acceptable, and focus on the
experience (reputation) and size characteristics of U.S. venture capitalists going
abroad; how their monitoring, delegating and syndicating activities change
relative to domestic investments; and how these variables relate to their successful
foreign outcomes. Our approach uses LOGIT regression to examine the
probability of U.S. venture capitalists going abroad and of having successful
outcomes using a period 19902004 SDC VentureXpert sample of 4,307
international and 14,065 U.S. domestic portfolio companies funded by one or
more U.S.-based VC funds. We nd, as did Fernhaber and McDougall-Covin
(2009), Guler and Guillen (2010a) and Hall and Tu (2003), that the most likely to
invest in international portfolio companies are experienced U.S. VCs, and they
target their international investments in more mature portfolio companies.
United States VCs investing internationally are typically of smaller size, and
possibly market through riskier international investments to establish themselves and their size by enhancing returns. These VCs are also not likely to invest
in high-tech portfolio companies, possibly because of added diculty in
monitoring them.
It does not appear that U.S. VCs use staging of international investments as a
monitoring mechanism, as they nance higher amounts per round over a fewer
number of rounds. Their international investments are also less syndicated than
their domestic investments, and this may reect their relative inexperience and/
or their lack of knowledge of international partners with which to syndicate. It
appears that U.S. VCs that invest internationally prefer to collaborate with
foreign counterparts for, rather than expend their time; they have more foreign
VC funds on their portfolio companies board of directors, delegating
monitoring to foreign partners. Sapienza et al. (1996), Lerner (1995), and
Bygrave (1987, 1988) showed that investment uncertainty causes VCs to monitor
more, and likewise our delegation results may be due to greater uncertainty
about international investments. Our results show that VCs behave dierently
towards their portfolio companies when they are international, consistent with
ndings of Wang et al. (2002), Sapienza et al. (1996) and Pruthi et al. (2003).
Finally, older, more experienced and smaller U.S. VCs have better success in
seeing their foreign portfolio companies go public, particularly when the
portfolio company is more mature. A higher amount of nancing of
international portfolio companies per round improves the likelihood of this
success, independent of the number of rounds, as does syndication of the
foreign investment (even though international investments generally are less
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K. Abdou, O. Varela/Accounting and Finance 54 (2014) 123

syndicated than domestic ones). An international portfolio companys status as

high-tech reduces the probability of success. However, the probability of
success improves when VCs increase their presence on the board of directors of
international portfolio companies and when they decrease their reliance on
foreign VC counterparts. All of our results are robust with respect to the
investee countrys openness and industry classication, stage of investment,
and possible sample selection for successful VCs.
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2012 The Authors

Accounting and Finance 2012 AFAANZ