Article

What Drives the Top Line?: Determinants of Sales Revenue in Private Venture–Backed Firms

John R. M. Hand

in The Oxford Handbook of Venture Capital

Published in print April 2012 | ISBN: 9780195391596
Published online September 2012 | | DOI: http://dx.doi.org/10.1093/oxfordhb/9780195391596.013.0024

Series: Oxford Handbooks

 What Drives the Top Line?: Determinants of Sales Revenue in Private Venture–Backed Firms

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This article identifies key determinants of sales revenue in private venture-backed firms. Given the intangible-intensive nature of venture-backed key assets (including intellectual capital, scientific discoveries, and technology innovations), it is hypothesized that both financial and nonfinancial factors would explain variation in their revenues. Using a Cobb–Douglas-type model of sales revenue, it finds evidence consistent with this hypothesis. Specifically, it is shown that venture-backed firms' one-year-ahead revenue forecasts are larger, the higher their current revenues; the more rapidly their personnel and granted patents are growing; the more business development, finance, marketing, sales, technical, and other staff they employ; and when they have a formal sales commission plan in place. In contrast, revenue forecasts are lower when firms are in the development and clinical-trials stages of life, but are uncorrelated with the number of administrative employees and the presence of a defined bonus compensation plan.

Keywords: sales revenues; venture-backed firms; Cobb–Douglas model; revenue forecasts

Article.  12617 words. 

Subjects: Economics ; Financial Markets

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