Signaling in science-based IPOs: The combined effect of affiliation with prestigious universities, underwriters, and venture capitalists

Abstract

This paper studies the combined effect of affiliation with prestigious universities, underwriters, and venture capitalists on the valuation of biotech ventures at IPO and their post-IPO performance. We argue that affiliations with a prestigious universities provide affiliated firms with a quality signal in the scientific domain, resulting in performances superior to that of firms affiliated with either nonprestigious universities or non-affiliated firms. The signal differs from and is additive to those provided by affiliations with prominent venture capitalists and underwriters. Results for a sample of 254 European biotech ventures that went through an IPO between 1990 and 2009 confirm our predictions.

Initial public offering valuation and prior shared experience in the boardroom of threshold ventures: A study of industry effects

“…Our tests and results of the long‐run effects of PSE between the CEO and the board on venture performance confirm the value of PSE as a signal. Our study thereby draws on and contributes to the literature that argues that to validate the value of signals, their effect must be established by incoming data and subsequent experience and be reliable (Colombo et al, ; Connelly et al, ; Spence, ).…”

“…First, we explore PSE between the CEO and the board, a type of tie that is particularly relevant in the context of new ventures where prior experience largely explains managerial decisions and outcomes (Dencker & Gruber, 2015) but has so far been ignored as an element influencing decision making around the IPO. Our study demonstrates that although new ventures in their early developmental stages may benefit from extensive PSE (Beckman, 2006;Honore, 2015;Zheng et al, 2016) (Colombo et al, 2019;Connelly et al, 2011;Spence, 2002).…”

“…We specifically used Tobin's Q and operating revenue (turnover) over 3 years immediately following the IPO. The long‐term study of signals is needed to provide evidence of a separating equilibrium (Colombo, Meoli, & Vismara, ; Connelly, Certo, Ireland, & Reutzel, ). It requires going beyond the receiver's reaction to a signal (in our case, the valuation at the IPO) to study whether the expectation associated with the presence of the signal is confirmed by postsignal findings (in our case, better long‐run performance).…”

Serial and large investors in initial coin offerings

“…As a result, as shown by Moritz et al (2015), crowd investors emphasised the positive effect of prior investments made by formal capital providers such as VCs and BAs, given their experience and that they had 'skin in the game' (Gorton and Pennacchi 1995). In the absence of the third parties' endorsement (Colombo et al 2019), investors consider the signals by observing the behaviour of the others and learning from them (Welch 1992). Based on the peer-effect model (Bikhchandani et al 1992), it might lead to information cascades among investors who ignore their private information and follow the wisdom of the crowd (Vismara 2018).…”

Government R&D Subsidy and Additionality of Biotechnology Firms: The Case of the South Korean Biotechnology Industry

“…This study controlled the factor of whether a firm was an "initial public offering (hereinafter "IPO") firm" or a "venture certified firm" because these were the elements that, by providing a good signal of the firm's valuation or reputation, could affect government R&D support selection. The IPO firms have already received assessments of technological innovation and growth potential for the IPOs [80]. The IPO process itself could have the function of scouting firms that are receiving government R&D subsidies.…”