How Important is Participation of Different VCs in German IPOs?

Abstract

This paper sets out to analyze the influence of different types of VCs on the performance of their portfolio firms around and after IPO in Germany. Our main finding is that market participants did not correctly assess the role played by the different types of VCs. Firms backed by independent, international and reputable VCs outperform other IPOs, and their share prices fluctuate less than those of their counterparts. Thus, independent, international and reputable VCs were able to add value by achieving a lower post-IPO idiosyncratic risk and a higher return. In contrast, firms backed by public VCs showed relative underperformance.

Keywords: Venture Capital, Initial Public Offerings, Long-Run Performance, Underpricing, Heterogeneity

JEL Classification: G14, G24, G32