Acta Oeconomica 47. (1995)
1995 / 3-4. szám - Karsai Judit: Open and Hidden Channels of Venture Capital Financing in Hungary
REVIEWS as well. However, such a situation often turns out to be the case only after the profitable sale of the rehabilitated company, as investments could serve many other purposes, too. Such firms are, for example, Dunaholding Ltd.., Co-Nexus Ltd. and Novotrade Ltd. Some of them are already listed on the stock exchange, which means that their size, management and transparency are above the average. Besides the banks, these “moonlighting” venture capitalists are the second most important players on the take-over market. Their names appear among privatization investors, initiators of investment funds, buyers of overdue debts, owners of banking interests or portfolio managers of state assets as well. The role of venture capital in Hungarian privatization Seemingly contradicting the important role of privatization consultancy firms in venture capital investments, the EVCA publication describes the number of investments making use of cheap privatization financing together with venture capital as “surprisingly low”. The study explains it by referring to the competition arising from preferential loans for privatization purposes and the mass of compensation notes. The “reserved nature” of venture capital can be explained by other factors, too. Preferential loans and compensation notes made available for buying state assets meant that the state wanted to sell them well above their real market value, reflecting their true earning capacity. This obviously contradicts venture capitalists’ logic. Venture capitalists wish to buy companies at a low price and sell them after rehabilitation with as high a profit as possible. While these prices remain artificially high, the interest on venture capital will not be raised. The more frequent purchase of companies in liquidation by utilizing venture capital indicates that prices on this “market” are more realistic. Another option for venture capitalists looking for participation in privatization would be to join other buyers entitled to the above preferences. A basic problem is the lack of mutual interest, because in the framework of such constructions venture capitalists risk their own capital, while their coowners risk only their shares (which represent only a minor ownership proportion). Employees’ own contributions are often paid or advanced by their companies. (Thus the bank, or rather its owner, the state, stands the risk of default. In the end, the state gets back the company, the value of which has been further reduced in the meantime.) (Cf., Boda, Hovorka and Neumann 1994; Karsai 1994; Karsai and Wright 1994) Many factors hinder their joining to buyout offers of employees and managers, tHiis it is no wonder that up to now there has not been a single deal of such construction. Venture capital has only appeared to replace employees as owners in already privatized companies facing serious financial troubles. Acta Oeconomica 47, 1995