Technology Timing of IPOs and Venture Capital Incubation

53 Pages Posted: 17 Mar 2010 Last revised: 7 Nov 2014

See all articles by Scott H. C. Hsu

Scott H. C. Hsu

University of Arkansas - Department of Finance

Date Written: September 20, 2012

Abstract

This paper investigates whether industry technological changes affect the timing of venture capital-backed IPOs. Venture capitalists (VCs) shorten incubation periods and take portfolio companies public when the industry exhibits high levels of technological change. This technology timing of IPOs reflects the VCs’ efforts to raise future capital. In particular, during periods of greater technological change, VCs that conduct IPOs after shorter incubation periods obtain more subsequent funding. However, portfolio companies with shorter incubation periods earn fewer patents, are less likely to survive, and experience worse stock returns after their IPOs. These findings provide new insights into VCs’ strategic exit decisions due to changes in the technological environment, as well as how their decisions affect the post-exit performance of their portfolio companies.

Keywords: Technological changes; Timing of IPO; Venture capital; Incubation period; Innovation

JEL Classification: G24, G3

Suggested Citation

Hsu, Scott H. C., Technology Timing of IPOs and Venture Capital Incubation (September 20, 2012). Journal of Corporate Finance, Vol. 19, 2013. Available at SSRN: https://ssrn.com/abstract=1573469 or http://dx.doi.org/10.2139/ssrn.1573469

Scott H. C. Hsu (Contact Author)

University of Arkansas - Department of Finance ( email )

Fayetteville, AR 72701
United States

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