Venture Capital and Timing of IPO

22 Pages Posted: 16 Dec 2007

See all articles by Donia Trabelsi

Donia Trabelsi

TELECOM Ecole de Management; Université Paris I Panthéon-Sorbonne

Date Written: September 1, 2007

Abstract

Our purpose is to find the optimal exit time of a venture capitalist (VC) under profit flow uncertainty. We consider that the VC sells his holding in two steps: at the offer price at the date of the initial public offering (IPO) taking into account the underpricing, then at the expiration of the lock-up period. We use a real options approach when the profit flow of the venture capital backed company follows an arithmetic Brownian motion. We find a closed-form solution of the threshold at which it is optimal for the VC to exit and also determine the expected first hitting time.

Keywords: Venture capital, Real options, Timing of IPO, dynamic programming

JEL Classification: C61, D81, G11, G24

Suggested Citation

Trabelsi, Donia, Venture Capital and Timing of IPO (September 1, 2007). Paris December 2007 Finance International Meeting AFFI-EUROFIDAI Paper, Available at SSRN: https://ssrn.com/abstract=1071766 or http://dx.doi.org/10.2139/ssrn.1071766

Donia Trabelsi (Contact Author)

TELECOM Ecole de Management ( email )

9, rue Charles Fourier
Évry, Ile de France 91011
France
01.60.76.42.85 (Phone)

Université Paris I Panthéon-Sorbonne ( email )

17, rue de la Sorbonne
Paris, IL 75005
France

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