On the Role of Inexperienced Venture Capitalists in Taking Companies Public

51 Pages Posted: 20 Sep 2007 Last revised: 22 Jun 2013

See all articles by Alexander W. Butler

Alexander W. Butler

Rice University - Jesse H. Jones Graduate School of Business

M. Sinan Goktan

California State University, East Bay

Date Written: June 7, 2013

Abstract

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

Butler, Alexander W. and Goktan, Sinan, On the Role of Inexperienced Venture Capitalists in Taking Companies Public (June 7, 2013). Available at SSRN: https://ssrn.com/abstract=1015086 or http://dx.doi.org/10.2139/ssrn.1015086

Alexander W. Butler (Contact Author)

Rice University - Jesse H. Jones Graduate School of Business ( email )

MS 531
Houston, TX 77005
United States
713-348-6341 (Phone)

HOME PAGE: http://www.owlnet.rice.edu/~awbutler/

Sinan Goktan

California State University, East Bay ( email )

25800 Carlos Bee Blvd
Hayward, CA 94542
United States
510-885-3797 (Phone)
510-885-7175 (Fax)

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