VC Ownership Post-IPO: When, Why, and How Do VCs Exit?

Abstract

We examine how the ownership of lead venture capital firms (VCs) evolves after their portfolio companies (PCs) are publicly listed. The VC investment period before the IPO, the VC age, the PC age, and the percentage change in the post-IPO stock price all incentivize earlier VC exit. Lead VCs remain invested for a longer period when the PC is of better quality, when the VC has more experience in taking companies public, and when the VC holds positions in the company’s compensation committee. VCs with longer pre-IPO investment periods prefer share distributions (SDs) to continuous sales (C sales), perhaps because SD provides a more expeditious exit compared to C Sales and M&A. Older lead VCs prefer C Sales to M&A, VCs with prior M&A exit experiences prefer M&A exits, and VCs investing in younger PCs prefer SDs.

Keywords: Venture Capital, Exit Time, Exit Mechanisms, Initial Public Offerings, Mergers and Acquisitions, Share Distributions

JEL Classification: G00, G10, G11, G24, G34