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Independent Venture Capital, Due Diligence, Staging, Successful Exits, Portfolio Firms
Independent venture capital (IVC) firms invest in nascent, high growth, high risk, and market scalable companies for the purposes of achieving a successful exit. An exit is the primary method IVCs use to receive a return on investment. Although IVCs provide capital funding, strategic advice, and access to an extensive network of potential suppliers and customers, approximately 20% of portfolio firms reach a successful exit.
This paper outlines the job of the IVC, the due diligence and staging processes, and addresses four factors that might account for the low successful exit rate: 1) diseconomy of scale in the venture capital industry, 2) emphasis on quick exits rather than building long-term sustainable companies, 3) exits that are independent of fund inflows, and 4) financial and market forecasts that appear to trump market conditions. This paper addresses a gap in literature by providing four factors contributing to low IVC success exit rates. To achieve higher exit successes, IVCs need to cease providing funding capital, especially during times of high capital inflows, and stop chasing portfolio firms that have little chance of achieving a successful exit.