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Title: When should venture capitalists exit their investee companies?
Authors: Li, X 
Tan, HH
Wilson, C
Wu, Z
Keywords: Exit strategy
Investee companies
Optimal control
Optimal stopping
Venture capital
Venture capitalist
Issue Date: 2013
Source: International journal of managerial finance, 2013, v. 9, no. 4, p. 351-364 How to cite?
Journal: International Journal of Managerial Finance 
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.
ISSN: 1743-9132
DOI: 10.1108/IJMF-01-2013-0003
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