Human capital and law in African venture capital and private equity markets

Abstract

The three articles in this dissertation investigate the effects of human capital and law on venture capital and private equity investments and exits in Africa. Using a novel panel dataset, I test the overall null hypotheses that these two factors have no influence on venture capital and private equity activity on the continent.

In the first article, evidence suggests that negative assortative matching occurs between general partners and private equity portfolio company teams in Africa by their work experience in the venture capital or private equity industry. Since portfolio company teams on the continent lack this human capital trait, the direction of matching suggests that the dissimilar agents they match to are general partner teams with more work experience in the venture capital or private equity industry.

In the second article, evidence suggests that relative to other-tech exits, an increase in the proportion of bachelor degrees and graduates from a top-ranked university in post-match general partner and portfolio company teams increases the probability of clean-tech initial public offering exits. An increase in the proportion of bachelor degrees also increases the probability of clean-tech trade sale exits. In addition, an increase in the proportion of masters or doctoral degrees in post-match teams increases the probability of clean-tech secondary sale exits.

In the third article, evidence shows that improving a country's legal environment has a significantly negative effect on seed, start-up, or early venture capital investment within its borders, in the short-run. Theory suggests this is because better domestic legal environments promote the use of debt by general partners, which is difficult for seed, start-up, or early stage portfolio companies to access due to inadequate assets that can be used as collateral.

Based on this evidence, I can reject the null hypothesis that human capital has no influence on private equity investments, and clean-tech exits in Africa. I can also reject the null hypothesis that law has no short-run influence on seed, startup, or early venture capital investments on the continent.