Post-Ipo Performance and the Exit of Venture Capitalists

Abstract

We test several implications of venture capital investment for the post-IPO performance of firms using data of 312 IPOs on Germany's Neuer Markt. Through tighter corporate control, third party certification and a reduced heterogeneity of opinions companies financed by Venture Capital firms might outperform their counterparties in the aftermarket of an IPO. However, this positive effect of VC backing on aftermarket performance could be reversed when Venture Capitalists seek exit from their investment. The discontinuation of a blockholder's exercised corporate control, signalling of insider knowledge as well as possible downward sloping demand curves provide an analytical framework that explains why the return series of VC backed IPOs might show a significant breakpoint at the time when Venture Capitalists exit from their investments. Our empirical evidence suggests that the expiration of lock-up periods as the earliest possible point of time for an exit represents such as breakpoint as Venture Capital backed IPOs outperform their counterparts before, but underperform around and after the expiration.

Keywords: venture capital, initial public offerings, long-run performance

JEL Classification: G24, G32, M13