Venture capital and firm performance

The venture capital system that has appeared firstly during USA in the 1940s, later has grown into an alternative financing method that has become widespread in different continents and countries. The entrepreneurs possessing innovative ideas and corporations aiming to grow, commercialize their products and improve their production systems; had problems with acquiring funds from financial markets and this forced them to search for alternative methods which in turn had an impact on venture capital system to become more wide spread. The literature on venture capital and private equity reveals that various applications of the system have been developed. Even though the system had shown up and spread in USA, each country adapted the system into its own culture and developed different procedures and implementations for it. Beginning with 1980's, venture capital system has come to the fore in Turkey as well and been implemented through various legal regulations and institutions. In the local literature, majority of the related studies concentrate on the theoretical context. Therefore, besides the theoretical context, it should also be analyzed whether the expected benefit was realized for the venture capital backed firms. In this study, it is aimed to analyze the effect of the venture capital investments with regard to venture capital-backed companies and to compare these firms' financial performances with the other firms in their sub-industries. In this study, financial performance of 12 venture capital-backed companies between 2005 and 2014 were analyzed. First of all annual records of these companies' have been examined with ratio analysis compared to their respective sub-industry bases with using TOPSIS approach. In these analysis, efficiency degree of each company and their ranking in their sub-industries were defined, variances of their ranking before, during and after the venture capital investment term have been examined. As a result of TOPSIS analysis, it is found that venture capital funding has affected rankings of 4 companies in a positive way, 5 companies in negative way and no impact was seen on 3 companies ranking. Afterwards, unbalanced panel data analysis has been used in the study to analyze the venture capital investment impact on companies' financial performances. Panel data analysis has been conducted by using companies' financial ratios from quarterly financial records between 2005 and 2014 and tested with using two different types of models. In the second part of study, evaluations done with considering, exit from venture capital investment, capital structure of investing companies, and stages of investment. As a result of Panel Data Analysis; a statistically significant relationship has been observed between venture capital investments and return on equity/return on assets.