Venture Capital Firm's Reputation and the IPO

Paper Summary:

The paper explains that the author will use a sample of U.S. IPOs from 1995?2000 to confirm the hypothesis that the initial return of IPOs offered by prestigious venture capitalists is significantly different than the initial return of IPOs offered by less prestigious underwriters. The author relates that, when a venture capital firm wishes to bring a privately held company public, it does so with the promise of vastly superior returns at a vastly greater risk. The paper stresses that it has been estimated that over 80 percent of companies that get the necessary venture capital eventually fail.

From the Paper:

"In the primary market, where information made available to investors through regular SEC filings is not available, issuers regularly underprice their companies in order to make them more attractive. However, firms that wish to go public use a variety of methods in order to offset the need for underpricing. As in the secondary market, management accountability has always been an issue affecting the risk considerations of investors; as trustworthy and competent boards are what insure that a company's stock trades at a premium to its book value; it is the capital budgeting ability of a company's management that allows the firm to continue to generate revenues."

More papers on Venture Capital Firm's Reputation and the IPO:

• Research Paper # 71648 : "Venture Capital Companies "
• Research Paper # 114140 : "Venture Capital Challenges"
• Article Review # 147926 : "Discussion of Papers Entitled "Do Managers have Capital Structure Targets and "The Capital Structure Puzzle"

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