« The Attractiveness of Central Eastern European Countries for Venture Capital and Private Equity Investors »

by

Alexander Groh, GSCM – Montpellier Business School, France

Heinrich Liechtenstein, IESE Business School – Barcelona, Spain, and

Karsten Lieser, IESE Business School – Barcelona, Spain

The contribution was awarded with the Featured Paper Award from the Financial Services Institute, New York City the 14th September 2007. The award was given by Professor Igor Tomic, director of the Financial Services Institute. The paper can be downloaded at papers.ssrn.com/sol3/papers.cfm

Abstract

We address the attractiveness of Central Eastern European countries for VC/PE investors by the construction of a composite index. For the index’s composition we refer to the results of numerous prior research papers that investigate relevant parameters determining entrepreneurial activity and/or the engagements of institutional investors. We aggregate the index via five different methods and receive country rankings that vary only slightly, signaling a robust index calculation. We clearly identify six tier groups of attractiveness for all of our sample countries. We compare our index with the actual fundraising activities in the individual countries and reveal a reasonable correlation of both figures. The results highlight the strengths and weaknesses of the particular economies and provide guidelines for policy improvements and institutional investors’ country allocations.

[JEL codes: G23, G24, M13, O16, P34, P52]

Keywords: Venture Capital, Private Equity, Central Eastern Europe, Economic Transition