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Title: When should venture capitalists exit their investee companies?
Authors: Li, X.
Tan, H.H. 
Wilson, C.
Wu, Z.
Keywords: Exit strategy
Investee companies
Optimal control
Optimal stopping
Venture capital
Venture capitalist
Issue Date: 2013
Citation: Li, X., Tan, H.H., Wilson, C., Wu, Z. (2013). When should venture capitalists exit their investee companies?. International Journal of Managerial Finance 9 (4) : 351-364. ScholarBank@NUS Repository.
Abstract: Purpose: Exit strategies are critical for external private equity holders, such as venture capitalists and business angels, to receive investment returns successfully. The paper models the exit decision as a fixed date with the option to exit early, and develop an approach to help private equity holders determine an optimal early exit region based on a target equity value and the time remaining. Design/methodology/approach: The paper sets up a continuous time model to derive analytical solutions and apply simulations to numerical examples in this study. Findings: By numerically analyzing the nature of the solution the paper illustrates that a higher return drift of the investee company, a lower return volatility of the investee company, and a higher target return of the private equity holder results a smaller early exit region. Originality/value: This study helps determine the optimal time of stopping investments, and provides venture capitalists with a usable way to make exit decisions. © Emerald Group Publishing Limited.
Source Title: International Journal of Managerial Finance
ISSN: 17439132
DOI: 10.1108/IJMF-01-2013-0003
Appears in Collections:Staff Publications

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