CROSS-BORDER VENTURE CAPITAL AND PRIVATE EQUITY INVESTMENTS

1. Introduction to Cross-border Investments

Understanding Venture Capital (VC) and Private Equity (PE)

Appreciating the workings of Venture Capital VC and Private Equity PE is crucial to comprehend the

dynamics of cross-border investment. This form of funding pushes young innovative firms with great

growth opportunities by investors in search of high returns (Cumming & Johan, 2016). It is conventional

for such a type of investment because it entails high risks but high returns to the investors in case of

success (Lerner & Hardymon, 2012). Private equity in contrast refers to the investment in more stable

and developed businesses to reorganize, rebrand or even grow them in order to increase their value

(Aagedal, 2013 Wright & Robbie, 2016). VC and PE are both important modalities of providing

development capital that aids in the creation of new jobs and the growth of economies (Bernstein et al.,

2019). Venture capitalists engage themselves to some extent in the management of portfolio companies

through offering valuable advice, contacts and assistance (thus, have a more significant role than PE

investors) (Cumming & Johan, 2016). On the other hand, PE firms are more active management

investors who initiate changes in operations and governance structures to generate alpha (Lerner and

Hardymon, 2012). To effectively invest in either VC or PE, then it is important that the investor

determines their risk tolerance as well as the return expectation they have (Wright & Robbie, 2016, p.

318). As the two types of investment are primarily geared to optimize the returns, they must be placed

in terms of risk/return characteristics and investment time span (Bernstein et al., 2019). Venture capital

funding involves relatively greater risks than the ordinary equity financing modes but yields much higher

returns especially in technologies booked industries (Cumming & Johan, 2016). While private equity

investments provide relatively less risk than LBOs, they also offer a lower rate of return in longer

investment period (Lerner and Hardymon, 2012), altogether, cross-border venture capital and private

equity are potentially essential for investors to comprehend the global market

characteristics. Understanding the nature and features of VC and PE, and possible risks and ways to

invest in them, is crucial for global investors to enable them to effectively operate on high risk, high

return ventures such as VC and PE investments to achieve optimality in the various portfolio elements.

Overview of Cross-border Investment Landscape

Another significant aspect of cross-border investment is the cross-border investment environment

which defines a complex process influenced by different factors including the economic conditions, legal

requirements, and geopolitical issues. The VCC cycle is expounded by Gompers and Lerner (2004) as a

presentation of how cross-border investments affect the phases of fundraising, deal sourcing, portfolio

management, and exit. In their paper Wright and Robbie (2012) have ventured further into the concept

of private equity focusing on internationalization and the prospects as well as the risks involved in the

expansion of investment in international markets, in his work, Casella and his colleagues explore how

private equity firms look for good investment opportunities, what challenges they face in the process,

particularly with regards to the regulatory aspects, and how they manage cross border deals.

Appelbaum and Batt (2014) provide literature review on new forms of work system in U. S that goes

beyond this scope, focusing on the dynamism of labor markets, organizations and employment relations

more than any of the aforementioned frameworks, though not specifically related to cross-border

investments, their recommendations put their work in a context that is pertinent to comprehending the

forces that govern the flow of investments within the growing global economy, Phalippou and

Gottschalg (2009) enrich the discussion by presenting an analysis of private equity funds to provide

various insights into the risk-adjusted performance and the value of leveraging on P-E Funds, their work

is significant and significant in shedding light on what distinguishes the performances of various funds

and the possible impacts that these findings may have on the cross-border investments. Combined,

these works give a frame and a context on cross-border investment providing views from both VC as

well as PE field along with macro-economic factors and even ratios and statistical figures, investors that

seek to access opportunities in other countries should be mindful of the challenges and patterns present

in cross-border investments, so as to address the difficulties in international markets and create value in

the global markets and diversify their portfolios.

Importance of Cross-border Investments in Global Economy

Important function within the global economy is international investments including the flow of capital

supporting the formation of economic growth, and international cooperation. According to Ljungqvist,

Richardson and Wolfenzon (2007), Firms in private equity invest cross border in order to expand their

investment frontier, have less correlation with local markets and invest to capitalize on opportunities. In

their turn, Kaplan and Stromberg (2009) are more concerned with the effects of LBOs and PE

transactions on economics and highlight the importance of OIC investments as the agents for reviving

troubled firms. Metrick and Yasuda (2010) continue with the discussion by offering a vast useful

overview of venture capital and private equity investments that underpin innovation and stimulate

entrepreneurship and employment in different locales. Gompers (1996) also expands on the issue of

grandstanding within the context of the VC industry showing how factors of competition, self-interest

fuel cross-border investment choices, Lerner (2009) also explores the issues facing public initiatives

driving entrepreneurship and venture, these studies point out the role of cross-border investments as a

means of stimulating economic development and encouraging entrepreneurship around the world.

Thus, cross-border investment helps with the spread of the best business practices, stimulation of new

business opportunities and the connection of certain economy to the international economy through

capital, knowledge and technology flows across the border of the investing country, the expansion of

cross-border investments should be seen as a critical element of the political and economic evolution of

the entire world and thus as an area calling for increased efforts to helping facilitate international

investments and cooperation.

Regulatory and Legal Considerations in Cross-border Investments

The legal and politico–legal factors play a crucial role in influencing cross-border investments directing

and orienting the investment processes across borders. Who are the authors of this piece of work on

regulatory impact on private equity and financial vulnerability in crises Published in the Review of

Financial Economics in 2019? Companies’ International Investment, this paper was also authored by

Cumming Johan and Zhang (2014) and adds to literature by providing a theoretical concept of

international investment by enterprises with specific emphasis on the regulatory environment impacting

the decision to invest in the foreign markets. Similarly, Bernstein et al, (2017) also examined the effect

of the regulation on new generation buyout and industry performance, and noted that certainty and

consistency in regulation are the key to market robustness and investors’ confidence. It is only by

studying the features of venture capital backed SME financing, that we get insights into financial

intermediaries and the ownership structures in the choice between relational and arm’s length forms of

financing that Cumming, Fleming & Schwienbacher (2014a) offer empirical evidence on the regulatory

mechanisms that promote or hinder entrepreneurial access to financing, however, Lerner and Schoar

(2005) examine the roles of legal enforcement regarding financial exchanges, focusing on PE

investments in particular. Theirstudy emphasizes that to protect investors ‘ rights, to support proper

legal enforcement of contracts as well as effective conflict solving in international deals sound legal

framework is crucial, altogether, these studies elucidate the importance of regulation and legislation in

CBI afield of all the need for integrative approaches among the policymakers, investors, and other

regulators in order to establish clear, stable, and favorable environment for cross-border investment in

the international markets.

2. Risk Assessment in Cross-border Investments

Evaluating Political Risks in Cross-border Investments

Important factors in assessing the political risks in cross-border investments is evaluating how politics

influences and formulate the probability of occurrence or threats that may affect investment results and

consolidation techniques. Da Rin, Nicodano, and Sembenelli (2006), for instance, analyzed public policy

contribution toward development of active venture capital markets where they noted that venture

capital markets policies, reforms, and political stability contributed to the productivity of such

markets. Investors can use politics to measure the political risk, look at the country risk, and even

predict future changes, in terms of laws, policies and regulations. Comparatively, Cumming and Walz

(2010) also help to improve the understanding with regards to the returns of private equity and the level

of disclosure around the globe, their study also highlights the need for political stability and compliance

to ensure regulator disclosure to encourage private equity investment and build investor trust. Volatility

such as instability in the political environment or changes in legislation and policies may reduce the flow

of FDI and establish jeopardy premium hence affecting investment returns and market liquidity. From

the work of Bernstein & Giroud (2019), the authors examine investments made by mutual funds acting

as venture capitalists observing political factors’ influence on venture capital investments in high-growth

startups or ‘unicorns, based on their study, they were able to identify the effects of political plays in the

VC business spectra with such considerations as a shift in taxes or regulations that affect investment

strategies of the business ventures. Further, Cumming and MacIntosh (2003) carry out comparative

study of venture capital exits, where the roles played by political systems and institutions on exit

measures and investment results are also discussed. Governing issues such as political risks, legal

reforms, governments interferences can cause divergent outcomes of exit strategies and unfavorable

progress of investment realization; therefore cross- border investments require extensive political risk

analysis. Concluding political risk analysis should be practiced to fit the fluid and volatile international

investment environment to advantage the international investors, political factors have an influence on

investment, and assessing the distribution and intensity of these factors is central to developing a good

risk management strategy and creating opportunities for portfolio that will yield good results in the

future.

Analyzing Currency Risks and Exchange Rate Fluctuations

Assessing Market Risks in Foreign Markets

Identification of future risks in a foreign operating environment is one of the critical steps before foreign

investment to determine the prospects of operating in new markets with various forms of risk. The

cumulative work of armstrong & liz by Cummimgs & Johan (2016) on “Oxford Handbook of Venture

Capital” offers generalized ways and means of managing and measuring business risk while investing in

vc in foreign countries, it is important to conduct a thorough market analysis to ascertain the general

market conditions, competition and regulation in the foreign markets in order to reduce the likelihood

of firms facing severe losses due to risks associated with foreign markets. In "Venture Capital and Private

Equity: Several management cases have been presented in “A Casebook” by Lerner and Hardymon

(2012) that gives real life example of how to determine market risks in differing foreign markets. The

casebook as described brings out the concept of market research, risk analysis, and risk management,

with emphasis put on the precautionary measures that are put in place to mitigate risk in case they

occur. Wright and Robbie's "Venture Capital and Private Equity: One of the recent sources, “A

Practitioner’s Manual” (2016), provides specific information and realistic advice on the market risk

assessment in foreign private equity investments, this manual also provides approaches on how to

conduct market research, identify competition in the market and predict possible changes that can take

place in the market in relation to investment plans. Ref. : Bernstein, Lerner & Mezzanotti, 2019 These

authors have sought to establish the impact of private equity on industries with the focus on industry

performance having identified the associated market risks with specific sector and location investments,

it is an important reminder to investors in industries affected by the dynamics that they have to

appreciate the competition and market forces so as be in a position to manage them well, furthermore,

to the discussion of the venture capital cycle as a framework for analyzing the potential risks of certain

global markets, Gompers and Lerner (2004) offer further insight, venture capital cycle of investments &

risks: This means that by identifying with the various stages of the venture capital cycle, investors can be

in a position to fore see most of the market risks that may be associated with a particular type of

investment and thus enable them formulate workable plans on how to adequately respond to such risks

as a way of optimizing for the best outcomes. Concluding it is important to outline that the evaluating of

risks inherent in a particular market in foreign countries should be based on profound assessment of its

peculiarities and outstanding features, including legal and competitive conditions of the specific market,

this paper argues that knowledge on high-risk international markets can be gathered from scholarly

publications and recommended sources to assist investors in global ventures with managing risks.

Mitigating Risks through Diversification and Hedging Strategies

Hedging forms an important aspect of managing investment in the market through risk diversification

and management. In their work, Bernstein and Giroud (2019) consider the role of mutual funds as

venture capitalists and also gain an understanding of investments risks, which can assist the

diversification strategies of investors towards venture capital funds. Diversification simply means using

several activities, all of which work to lessen the impacts of risk in every particular venture, Cumming

and MacIntosh (2003) also study the comparative analysis of venture capital exits to understand the

virtue of diversification for moderating exit risks. To so say, their research reveals the opportunities for

investors to reduce such risks as country risks and risks associated with certain sectors as well as to

promote portfolio stability and high performance in the long run by expanding their portfolios abroad

and across industries. Gompers and Lerner (2000), in their work, highlight effects of fund inflow in the

context of private equity valuation and cover the hazards related to fluctuation, geared reduction

through hedging. Through options, they can be able to control for directional risks in assets or exchange

rates and thereby capitalize on downside risks and contain erosion of portfolio in unfavorable

conditions. Moreover, in the context of exploring factors determining the investment behavior of

buyout funds, Ljungqvist, Richardson, and Wolfenzon (2008) pointed out that hedging activities played

the crucial role in mitigating risks concerning leveraged buyouts, using specific ways of hedging against

rates fluctuations, exchange risks, and other macro drivers, buyout funds are, therefore, ready to reduce

the impact of the downside risks and as well maximize the upside potential of their returns, the study

reveals that the concepts of diversification and hedging are important tools for managing risks in

venture capital and private equity investments. Diversification in an investment portfolio, and then

guarding against losses through hedging ensures the investor’s portfolio has the greatest chance of

being resilient in uncertain and volatile market situations while maximizing the portfolio returns for the

amount of risk taken.

3. Structuring Cross-border Deals

Deal Structuring for Venture Capital Investments

Venture capital deals: Centering on structuring of the contracts that enhance and coordinate between

the investor and entrepreneur goals and eliminate imperatives that may downgrade the investment

return. Bernstein et al. (2017) speak about deal structuring in private equity industries and the effect of

this approaches on overall performance of the field; the authors stress the role of appropriate incentive

design and firm governance in improving deal performance. In their work, Cumming and Spiess, Fleming

and Schwienbacher (2014) look at how financial intermediaries and ownership impact line of Venture

Capital financing to the SMEs, the deal structures crucial for achieving capital for new and

entrepreneurial firms, they also argue that significant evidence exists on how to negotiate deal

structures, with the goal of developing effective mechanisms custom-made for SMEs. Lerner and Schoar

(2005) seek to identify how legal enforcement facilitates financial transactions on private equity,

focusing on contractual features of deals, their study stresses the need to have sound legal systems and

VCMs that can enforce contracts so as to manage agency costs hence enhancing the achievement of

venture capital investments. Also, Da Rin, Nicodano, and Sembenelli (2006) discusses on the access

mechanisms to venture capital that stresses on the policy changes in the technology sector where the

government involvement in creating active venture capital markets is of paramount importance to

examine the impact of public policy on the deal structures and investment opportunities, close attention

to the existing systems and taking advantage of the policies today is critical to helping investors to

properly structure their deals and solve issues related to regulations. Inter alia, Cumming and Walz

(2010) discuss private equity returns and disclosure regime on international level, shedding light on deal

structure in various legal jurisdictions, their research suggests that there is need for connection and

information release to the investors so as to improve on the levels of information certainty in deal

making, defining legal, regulatory, and governance issues of structure for venture capital deals means

the creation of win-win solutions for all participants by focusing on value-added outcomes and risk

profiling for corporations, investors, and VC firms. First, by aligning incentives, it means that investors

will be able to structure deals in such a way that will benefit them in the long-run and the

entrepreneurial ventures they fund second, through the establishment of clear and effective governance

mechanisms that will encourage participation and motivate further innovation and growth by the

entrepreneurial ventures lastly, through the use of regulatory incentives, deal structuring will be

fashioned in order to benefit both the investors and the entrepreneurial ventures.

Structuring Private Equity Investments in Foreign Markets

Managing private equity investments along the global value chain requires understanding its decision-

making context steeped in the dynamics of investing in markets abroad. In examining the private equity

funds, Phalippou and Gottschalg (2009) argue that examine structures help in enhancing the overall

returns required in foreign markets, the key issues that play an important role in determining the

performance of the international investments and the risks associated with such investments are

essential to understand in order formulating a structure for private equity deals abroad. Among the

investigations that deal with the effects of institutional investors and their strategic decisions,

Ljungqvist, Richardson, and Wolfenzon (2007) focus on private equity fund managers and their

investment behavior to reveal the key factors and actions that affect the structure of direct investment

in foreign countries, they also warn about the need to conduct adequate market research, conduct

background checks on potential target companies, and evaluate risks when arranging lucrative overseas

PEF deals. In their chapter, Kaplan and Stromberg (2009) expound on LBOs and private equity

transactions before providing an insight into the structuring of the deals that facilitate value addition in

foreign markets. The author shall consider how the regulatory system affects the different deal

structures, and how by using financial engineering and forming strategic partner relations, a private

equity investor will maximize the investment yields, Metrick and Yasuda (2010) offer a comprehensive

overview of the venture capital and private equity investments concerning international markets and

the structuring strategies that investors utilize in such environments, they emphasize several key factors

that can support investment decisions in the foreign markets, such as local market knowledge and

cultural sensitivity, as well as an understanding of barriers to entry in the specific country. Moreover,

Gompers (1996) providing insights on grandstanding in the vouchering capital industry, emphasizing on

the need to balance on and off setting of interests in structuring private equity deals and particularly in

cross border setting, interpersonal communications, trust, and relationships are critical to good

communication, negotiations, and structure of Private Equity investment in foreign countries.

Furthermore, within the last innovative task, Lerner (2009) analyses the problematics of public initiatives

aimed at promoting the activities of venture capital and small business and provides recommendations

to the policymakers and investors for structuring the promotion of the entrepreneurship and venture

capital investments in the foreign countries, the process of reorganization of private equity investments

in foreign countries is closely connected with the necessity to take into account the specific conditions

of the certain country and markets, potential barriers, and cultural differences, from academic studies

with social sciences and experienced practicians’ viewpoints, investors can come up with good

structuring strategies that assist him or her in mitigating the challenges of international investment

environment and achieving better investment returns in foreign countries.

Understanding Cross-border M&A Transactions

It is thus necessary to explore the cross-border M&A transactions, the different facades of venture

capital and private equity and multiple intricate economic and organizational environments involved.

Understanding the financing aspects of M&A transactions can be gained from the ‘Oxford Handbook of

Venture Capital’ by Cumming and Johan (2016) where the authors present the work identifying the role

of VC in the development of technological innovation and growth in the target firms. Lerner and

Hardymon's "Venture Capital and Private Equity: Some useful texts are “A Casebook” (2012) that

focuses on the M&A transactions that is useful for presenting and proving an example of strategic

directions, negotiation and actions in structure and function of cross-border acquisitions. Analyzing such

cases can aid investors in identifying strategic approaches to international M&A deals with a view of

achieving improved deals. Similarly, Wright and Robbie's "Venture Capital and Private Equity: A

Practitioner’s Manual” (2016) gives recommendations on M&A planning and implementation,

containing information regarding the evaluation step, valuation methods, and the merger step.

Accordingly, the investors are also capable of increasing their knowledge on the actual cross-border

M&A transactions and thereby, improving the skills and techniques in the deal-making process with the

help of the concepts given in the manual. Bernstein, Lerner, and Mezzanotti (2019) look into the

performance of the merged companies under various industries, and with regards to the empirical

analysis of BADC, they consider the international acquisitions and understand the value creation process

and strategies of the M&A transactions, their work highlights the need to carefully assess M&A

prospects based on industry characteristics and the strategic fit with the firm’s overall goals and

objectives and manage risks inherent to cross-border transactions. Furthermore, Gompers and Lerner

(2004) address the issue of venture capital cycle and its impact on the M&A related operations in the

process of unraveling how cycles and trends in relation to the market affect the flow of deals and

investment patterns. Analyzing the global picture on the M&A enables investors to predict the economic

activity and select prospective cross-border transactions, writing in the journal, International Private

Equity, Wright and Robbie (2012) discuss the finer details of private equity transactions, how the

regulations, culture, and operation of the M&A transactions differ in countries during cross-border

acquisitions, their experience provides a rich background to help managers understand the impacts of

international deal-making and offers insights for creating value within international markets. Last,

Appelbaum & Batt (2014) give some ideas in organizational contextual changes and business change

initiatives in the context of organizational dynamics which is helpful for overall understanding of the

human capital implications and organizational integration risks and opportunities for cross-border

merger and acquisition activity. Based on these factors, the investors would be able to be more

informed and fully understand the organization effects of M&A transaction and the ways by which

values can be recognized after the M&A transaction.

Tax Implications and Structuring Considerations

Legal issues like tax aspects and issues related to company structuring, play an important role in private

equity and venture capital deals and determine the investment solutions and the results of M&A.

Actually, the cyclicality of private equity is described by Bernstein and Lerner (2006), specifically in terms

of tax planning and structuring. Tax effect of optimizing of the structures of the mergers, acquisitions

and leveraged buy outs are among the crucial drivers of the investment returns and tax burdens.

Analyzing the possible forms of VC exits, Cumming, Fleming, and Schwienbacher (2006) underline the

legal and regulatory perspective on exits stressing the crucial role of tax legislation in definitive exits

definition with reference to legal issues and taxation, this paper will argue that it is possible to achieve

optimum exit strategies in regard to divestment by avoiding legal pitfalls and at the same time achieving

the best results in terms of taxation policies. The venture capital revolution is highlighted by Gompers

and Lerner (1999) on how the changes impacted entrepreneurial financing and investment. There are

observations within taxes, including the capital gains tax treatment of the assets and tax benefits

applicable to venturing capital investments. Another paper by Kaplan and Strömberg (2009) focused on

the aspects of LBOs as well as private equity transactions with the help of successful tax strategies, by

availing debt financing and efficient use of tax shelters, PE investors can strike an appropriate capital

structure and manage taxes in a manner that contributes toward enhancing the rate of returns on

investment. Moreover, through a discussion of different empirical evidence, Bernstein, Lerner, and

Schoar (2016) offer an examination of sovereign wealth funds and their investment strategies, including

tax effects and structuring of cross-border investments. Many SWFs encountered multidimensional tax

environment and regulatory system in the host country, thus to attain the utmost investment yield as

well as to mitigate tax costs, efficient tax management and planning is of outmost importance, taxes and

structuring concerns are an essential part of private equity/VC investments, affecting everything from

investment profiles to structures and, consequently, investment returns. Investors can therefore be in a

position to devise ways to reduce their tax burden and legal risks while at the same time enjoy higher

yields from the decision on investment and deal form.

4. Due Diligence in Cross-border Investments

Conducting Financial Due Diligence in International Investments

Effects analysis performing financial due diligence on international investments analysis is much more

complex than on local ones, mainly due to the fact that the former involves cross-border transactions.

Kaplan and Strömberg (2009) have described the role of financial due diligence when acquiring targets

with the help of LBOs and private equity firms insisting that sufficient investigation and measurement of

the financial information disclosed in the target’s books and records combined with appropriate analysis

of tangible and intangible assets, liabilities, and potential future cash flows of the firm should be

conducted by the acquirer. There are always some additional challenges in international investments

these include currency risks, legal system differences and culture differences among others and

therefore tend to involve much more research in trying to avoid such risks, this paper by Bernstein,

Lerner and Schoar (2016) provide insights into the investment activities of the sovereign wealth funds,

with a focus on the due diligence procedures the institutional investors undertake while investing in

foreign markets. SWFs also engage in the measurement of performance of potential investment plans to

analyze the market situation and the feasibility of a given strategy in compliance with the strategic goals

and acceptable level of risk. In their paper on risk management of global investments focusing on FDI

and sovereign wealth funds, Cumming, Johan, and Zhang (2014) underscore the significance of

conducting research owing to high risks and volatility of cross-border investments. Financial due

diligence is used in the examination of the company’s financial records, the investigation of the market

into which the investment will take place and the review of the potential contingencies and

repercussions that may arise as due to international investment. For more details on corporate

governance and its effect on equity prices, Gompers, Ishii, and Metrick (2003) provide a clear

perspective focusing on the aspect of due diligence when assessing various firms’ governance standards

and risk management approaches for global investment. This is because, in cross border acquisitions and

invocations, the mercantile risks and prospects for speculation are established depending on the

corporate governance structures and policies of the target organizations. Furthermore, Kaplan and

Strömberg (2009) revealed the patterns for financial due diligence by identifying the factors for LBOs

and private equity transactions, particularly in understanding the financial position of the target”.

Legal Due Diligence Process and Best Practices

Legal due diligence as a part of transaction legal work refers to one of the most valuable constituents in

private equity and venture capital deals owing to legal risks potentially influencing investment success

greatly. Lerner and Schoar (2005) analyze influence of legal enforcement for financial transactions,

underscoring those solid laws and effectively enforceable contract are crucial to private equity deals.

Another activity of legal investigations known as ‘legal due diligence’, refers to legal audit of potential

target companies, in terms of legal liabilities, including the requirement for compliance with the law,

original contracts and legal cases. Da Rin, Nicodano, and Sembenelli (2006) discussed the impact of

public policies is illustrated in Relation to the evolution of Venture Capital Markets where clarity in

legislation and legal certainty emerged as critical pillars of investment activity. An effective completion

process involves the assessment of legal risks of investing in new targets/Deals and implications of

government frameworks to the investment opportunities and deal structures. In the study of the private

equity return and disclosure across the globe, Cumming and Walz (2010) highlight on the need to have

legal due diligence when looking at prospects of investment risks and returns across international

jurisdictions. Legal due diligence is a legal risk assessment process that entails examination of legal

documents including contracts/ agreements and legal claims /intellectual property rights with the

intention of ascertaining implications to the investment value. In the same regard, Bernstein and Giroud

(2019) opine on how mutual funds also partake in acting as venture capitalists and the legal concerns

arising out of such investments. The legal due diligence in the sphere of mutual funds is useful and

aimed at the compliance with legal demands in the sphere of venture capital transactions and

protection of the investors. In addition, Cumming and MacIntosh (2003) provide cross-sectional analysis

of venture capital exits with reference to a number of countries indicating legal issues regarding various

exit methods. Legal due diligence is a factor that should be given special attention during the exit

transactions in order to uphold sound legal policies that will enhance the ownership change. To sum up,

legal due diligence is a critical procedure that aids the investors to pinpoint legal risks and analyze them

before financing; guarantee that the provisions of the investment will observe the lawful restraints in

the target business; and safeguard the investors’ interests from the time of investment, in legal and

other related regards, the investors should ensure that they have done their homework well in a bid to

avoid coming across some of these legal pitfalls that are likely to crop up in future.

Cultural Due Diligence: Understanding Local Business Practices

Cultural due diligence helps to avoid misunderstandings of cross-cultural communication and

understand the basic rules in relations with counterparts in the framework of M&A transactions. There

is a discussion of grandstanding in the venture capital industry by Gompers (1996) The author stress the

necessity to understand and align cultural values when designing and implementing a successful

cooperation strategy between investors and entrepreneurs. Cultural sensitivity entails identifying the

working culture and means of business communication in different markets to create a right working

foundation. Lerner (2009) analyse the problematics of changing cultures of entrepreneurship and

Venture Capital to reveal the difficulties of public efforts to promotion of venture capital and small

business, pointing to the problems with the cultural sensitivity of making changes in organizational

practices. It is important to name that Cultural due diligence assists the investors to study more cultural

factors influencing their potential operations and business, and to adjust their strategies according to

the existing norms and habitual practises, which again contributes to the increased rates of successful

entrepreneurial activity. Bernstein et al (2019) analyzed the connection between private equity and

financial vulnerability in crises; thus, arguing for cultural due diligence in the evaluation of target firms’

coping capacity to adverse economic conditions. Relating risk and resilience with cultural practices is

central to comprehending the investors’ contextual drivers across the globe in order to hedge against

the risks and harness the opportunities in uncertain climate. It is the process of evaluating cultural

similarities or differences, social practices and structures of institutions, in the target countries in order

to make wise investment decisions that will also help avoid cultural blunders. Moreover, in the study by

Bernstein, Lerner, Sorensen, and Strömberg (2017) where the authors explain about private equity,

culture sensitivity as part of due diligence is viewed as critical for industry performance as well as

competitiveness, cultural due diligence can help investors to identify possible areas of endogenous

growth, reveal potential barriers to changes, and adapt provision based on country context, thereby

improving investment results. Furthermore, while analyzing the venture capital investments in Japanese

SMEs, Cumming, Fleming and Schwienbacher (2014) also stress that culture is an important factor that

needs to be taken in account while structuring deals and negotiating with the financial intermediaries,

cultural due diligence assists investors in the following ways by explaining cultural differences, increases

confidence when dealing with the other party, enables the investor to trust the local party, and provides

the means necessary for finally undertaking an investment transaction, in conclusion, the cultural

examination of the target country is highly significant for an investor to be familiar with the ways of

interacting with the local business environment, in a concerted manner, investors can then avoid cross-

cultural pitfalls, develop trust and optimize the chances of success of international business ventures

when they follow the steps enumerated below:

Technological Due Diligence for Cross-border Ventures

Cross border merger and acquisitions literally involve two or more companies coming together to form a

new business entity and technological due diligence is one of the most sensitive areas of assessment in

the current globalized world, continuing with the discussion of work systems, Appelbaum and Batt

(2014) discuss trends in the United States with regard to the nature of change in these work systems, as

well as the nature of technological change in today’s workplaces, it is crucial for investors undertaking

FDI to understand these changes because it helps investor decisions concerning embracing,

implementing and developing new technologies. Phalippou and Gottschalg (2009) examine private

equity fund performance with an eye to the way technological DD can help in the selection of

investments and identify sources of value-add, technological due diligence is the process of evaluating

the state of technological dispositions, assets, and property of the companies that are likely to become a

merger partner or an acquisition target in order to determine their suitability for competing and

sustaining their businesses in global markets. Ljungqvist et al, (2007) examine the tendencies in the

investment strategy of private equity fund managers focusing on technological due diligence as a crucial

factor in possible shifts, new technologies, and opportunities sourcing. Technological due diligence is

very relevant to the fund managers as it keeps them informed on technological advancements, create

value from those innovation and in turn make investors happy. Leveraged buyouts and private equity

transactions are considered by Kaplan and Stromberg (2009), and it notable that technological due

diligence is used to evaluate the targets’ technological resources and competencies, it also entails

assessing the strategic management capability, measurement of risks such as those relating to

technological growth, and cybersecurity issues, as well as formulating a plan to minimize such risks to

investors’ interests. Further, Metrick and Yasuda (2010) examine the survey of venture capital and

private equity investments in which increased efforts are made for technological due diligence to

influence deliberate investment strategies and portfolio management activities. Technological due

diligence concerns the identification of the technology worth of the target businesses, indicating the

defense and growth potential of their technology portfolios and solutions as investment and risk

mitigation tools, in conclusion, this involves the assessment of the state of technology of the

organization apart from the identification of the key opportunities and risk associated with technology

in cross-border ventures, in other words, technologically oriented due diligence plays an important role

in the manner in which target firms’ technologies are assessed, the match between investments and

technologies, strategies of maximizing investors’ returns from cross-border investments are developed.

5. Managing Cross-border Investments

Post-Investment Monitoring and Value Addition

The evaluation phase includes venture capital and private equity investment post-investment

management and value enhancement, which are vital in the achievement of set returns and thus

success on an investment. Post investment monitoring as pointed out by Cumming and Johan (2016),

refers to consistent assessment of the portfolio company to determine its effectiveness and other

possible risks to be managed, this process must involve the investors in making contributions in terms of

giving directions, resources, and referral companies to help the growth of the company. According to

Lerner and Hardymon (2012) some forms of value addition include operational improvements that help

to run the businesses more efficiently, strategic direction that orients the business towards the right

direction and governance mechanisms that manage the businesses. Eusher: Many venture capitalists

and private equity investors utilize their experience and connections in the industry to offer guidance

and support to the firms that are invested in. As pointed out by Wright and Robbie (2016) that, sources

of value-added services involve financial restructuring, recruitment of key human capital, and

practicable strategies in market expansion to bolster on the portfolio companies. Bernstein, Lerner, and

Mezzanotti (2019) argue that effective post investment intervention and value creation can create the

multiplier effect, improve industry performance hence returns for investors and ultimately, economic

growth, Gompers and Lerner (2004) postulated that venture capitalist’s capability to make value

addition to their portfolio firms is essential in analyzing performance on the venture capital cycle, in

conclusion, one of the major findings that can be deduced from this research study is that post-

investment monitoring and value addition are critical steps in the venture capital and private equity

investment. From this perspective, based on the investment made, through interactions with,

supporting, advising, as well as using contacts to build a presence in portfolio businesses, investors are

in a position to optimize the operation and performance of the investments made, ensuring its

profitability is not only an advantage for the investors but underscores the overall development and

progress of the economy.

Managing Cross-border Portfolio Companies