On the Role of Inexperienced Venture Capitalists in Taking Companies Public
51 Pages Posted: 20 Sep 2007 Last revised: 22 Jun 2013
Date Written: June 7, 2013
We use venture-backed initial public offerings (IPOs) to identify and examine the comparative advantage of inexperienced venture capitalists. We argue that, vis-a-vis more established counterparts, younger venture capital firms have a comparative advantage at producing soft information about relatively opaque start-up companies due to their organizational structure. We then quantify an outcome — IPO initial return — from the matching of venture capitalists and start-up companies that demonstrates how this comparative advantage arises. Our findings thus reveal an important aspect of how inexperienced venture capitalists support start-up companies.
Keywords: Venture capital, soft information, IPO, grandstanding
JEL Classification: G24, D80
Suggested Citation: Suggested Citation