Venturing Beyond the IPO: Financing of Newly Public Firms by Venture Capitalists
66 Pages Posted: 18 Apr 2016 Last revised: 13 Jun 2019
Date Written: June 12, 2019
Contrary to conventional wisdom, we document that approximately 15% of VC-backed firms raise additional capital from VCs in the five years after they go public. We posit two explanations for why firms revert to VC financing post-IPO. First, we hypothesize that VC participation in post-IPO financing represents an efficient solution to informational problems that would otherwise constrain firms’ abilities to exploit value-increasing investments. Analyses of firm and VC characteristics, combined with the finding that these investments are value-increasing for both VCs and the underlying companies, strongly support this hypothesis. We find no support for the alternative hypothesis that agency conflicts motivate these investments.
Keywords: Venture Capitalists, Private Equity, Newly Public Firms, Equity Issuance, IPOs
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