Public Market Institutions in Venture Capital: Value Creation for Entrepreneurial Firms
Huang, Shiyang; Mao, Yifei; Wang, Cong (Roman); Zhou, Dexin
Institutions that traditionally focus on the public equity market are making an increasing number of venture capital (VC) investments in the private market. Examining these investments, we find that an institution-backed entrepreneurial firm is more likely to have a successful exit, either through an IPO or through an acquisition. Meanwhile, these institution-backed entrepreneurial firms tend to be more mature, require higher amount of financing and attract more reputable VC investors. Our baseline results continue to hold in a propensity score matching analysis. Furthermore, there is a strong positive association between prior public equity market performance of an institution and successful exits of entrepreneurial firms backed by the institution. Finally, we show that the issuing firms with the presence of institutions have lower IPO underpricing and higher net proceed, which suggest that the presence of institutions certifies the value of entrepreneurial firms to the public.
venture capital; institution; entrepreneurial firm; certification; JEL G24; JEL O31; JEL G23; JEL G34
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