Venture capital reputation and investment performance☆

Going Public – Going Private: The Case of VC-Backed Firms

“…Testing these hypotheses with our data set which covers a large part of all US IPOs in the time period between 1975 and 2010 reveals that we do not find support neither for the timing nor for the grandstanding hypothesis. Our analysis, however, indicates that measures for VC experience and reputation (derived partially from a recent study of Nahata (2008) on the link between VC reputation and performance in the pre-IPO period) of the VC which brought the firm initial to the exchange have a positive and significant impact on the going-private probability. This finding clearly supports our certification hypothesis implying that indeed more experienced and reputable VCs are able and willing to bring marginal firms to the market.…”

“…It is interesting to view our results against the background of the findings of Nahata (2008). Nahata (2008) shows that experienced and reputable VCs (as measured by the MARKET-SHARE-MCAP-VC variable) are more likely to exit their ventures successful venture.…”

“…Thereby, they have two major alternatives at hand to sell their shares in their successful portfolio firms: either to sell the entire firm to another firm in the course of a trade sale or to opt for an initial public offering and to divest in the course of the going-public process (see e.g. Nahata (2008)). Our numbers suggest that especially in the 1990s disinvestment via the IPO route was rather dominant, while it lost momentum in the post 2000-period (see e.g.…”

“…Last but not least, we employ a variable which has been proposed and used recently by Nahata (2008) in his study on VC performance. He constructs a variable which measure each VC's firm share in the accumulated market capitalization of VC-backed IPOs up to the year of the IPO of the respective VC-backed firm.…”

“…Nahata (2008) shows that experienced and reputable VCs (as measured by the MARKET-SHARE-MCAP-VC variable) are more likely to exit their ventures successful venture. He also finds that more reputable VCs exit their ventures faster.…”