VIPE Financing: Venture (Capital) Investments in Public Equity

Abstract:     
This paper studies 1,655 venture investments in public equity (“VIPEs”) over 1995-2008. Although it has been conjectured that venture capital firms (VCs) have increased investments in public equity over time, we find little evidence to support this claim as VIPEs represent less than 2 percent of total VC investment in most years. VCs appear to invest in VIPEs to leverage their experience and to capitalize on perceived undervaluation of the issuer’s equity shares. Consistent with this, VIPEs are highly concentrated in a few industries and VCs purchase stakes at a price 47 percent below the issuer’s previous year’s high price. We do not, however, find evidence that the experience VCs gain from investing in private companies results in an ability to consistently identify undervalued public companies.

Number of Pages in PDF File: 37

Keywords: PIPEs, private placements, venture capital

JEL Classification: G24

working papers series