Venture Capital Reputation, Post-IPO Performance and Corporate Governance

Abstract

We examine the association of a venture capital (VC) firm’s reputation with the post-IPO long-run performance of its portfolio firms. We find that VC reputation, measured by the past market share of VC-backed IPOs, has significant positive associations with long-run firm performance measures. While more reputable VCs initially select better quality firms, more reputable VCs continue to be associated with superior long-run performance, even after controlling for VC selectivity. We find more reputable VCs exhibit more active post-IPO involvement in the corporate governance of their portfolio firms and this continued VC involvement positively influences post-IPO firm performance.

Keywords: Venture capital, Reputation, Initial Public Offerings, Post-IPO long-run performance, Post-IPO VC shareholdings and directorships, Corporate governance

JEL Classification: G24, G34, L33, M13