Venture Capital, IPOs and Corporate Innovation

Abstract

One important effect of the sluggish IPO market is the focus on deregulation and the emergence of a new generation of securities markets. These deregulated markets are considered important to stimulate entrepreneurial activity and attract venture capital. This paper argues that the introduction of these new markets and accompanying deregulatory measures exhibits a surprisingly low success rate.

There are several reasons for this. First, founders of emerging growth companies increasingly believe that it is in their best interest to remain private as long as possible. Second, we show how the decline of IPOs has led venture capitalists and entrepreneurs to access other exit routes. Trade sales have become the preferred exit option for most investments in growth companies. Third, we observe that mature corporations show an increased interest in hiring or collaborating with venture capitalists (to improve the innovation outcomes of the mature corporations). Fourth, by using case illustrations from the corporate venture capital industry, we highlight the wide variety of new collaborative venture capital models (which will arguably pave the way to even more trade sales with higher exit values in the future).

Keywords: corporate governance, corporate venturing, entrepreneurship, initial public offering (IPO), innovation, trade sales, value creation, venture capital

JEL Classification: G01, G24, G34, K20, K22, L22, L26, O16, O31