Staged Financing as a Means to Alleviate Risk in VC/PE Financing

Abstract

This article investigates the determinants of staged financing of venture capital/private equity (VC/PE) funds in the Indian infrastructure sector. We test whether staging used by VC/PE funds reduces information asymmetry and uncertainty associated with infrastructure investments. The findings indicate that staging is more pronounced for new infrastructure firms and at early stages of development. The results are consistent the existing evidence that staging being more pronounced in syndication also mitigates the holdup problem induced through staging. Furthermore, the authors find evidence that the evaluation process used by experienced VC/PE funds reduces the potential danger of adverse selection as well as the need for staging. These findings are inconsistent with the view that VC/PE funds less acquainted with the country of operation are more inclined to use staging.

TOPICS: Private equity, emerging, statistical methods, other real assets