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The PE/VC industry is still in its early stages in Brazil, compared to the United States or England, for example. Although the capital market has considerably impacted the economy since 2004, of the 88 IPOs occurred between 2004 and 2007, 31 (35%) were financed by PE/VC (GIONELLI, 2008). Despite the remarkable contribution to the market, there are few studies centered on the PE/VC funds, in particular on the key drivers for the allocation of resources raised.
The main goal of this paper is to understand which factors have influence on the PE/VC market. To achieve it, we separately analyzed the supply and demand sides of the transaction.
Some studies discuss the determinant attributes to the activity of the PE/VC market, but most of them deal with Private Equity markets separately from the Venture Capital markets. The reasons for this are obvious: while some attributes have the greatest impact on early-stage companies, there are other attributes that directly affect mature companies already established in the market (JENG; WELLS; 2000).
Twenty five variables were chosen consistent with the existing literature. Using Factor Analysis, we modeled variables that possibly affect the demand of the PE/VC. These factors include macroeconomic, financial, corporate governance, entrepreneurship, social and environmental development variables. After that, we exploited a pooled regression composed of 24 countries over a six year period (2006-2011).
The results indicate that investments are adversely affected by the depth of the capital market: PE/VC funds seek an exit strategy which the stock market can offer through IPOs. Other significant factors were the protection of investors, social and environmental development and the entrepreneurship. Different from expected, economic activity was not significant for demand.
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