Do Venture Capital Investors Learn from Public Markets?

2021 ◽  
Author(s):  
Bibo Liu ◽  
Xuan Tian
Keyword(s):  
Venture Capital ◽  
Initial Public Offering ◽  
Stock Prices ◽  
Public Markets ◽  
The Public ◽  
Real Effects ◽  
Public Market ◽  
Variable Approach ◽  
Public Offering ◽  
Startup Firms

We examine whether venture capital (VC) investors learn information contained in public market stock prices. VCs are less likely to stage finance startups and syndicate with other VCs when stock prices are more informative. An instrumental variable approach suggests that the relation is likely causal. The startup’s initial public offering (IPO) prospect is the plausible information contained in stock prices learned by VCs. The effect of VC learning on staging and syndication is more pronounced when collecting information is more costly and the information learned is more reliable. Evidence from a survey of VC investors confirms that they actively learn information from the public market. VCs’ learning from the public market significantly affects their investments across startup firms. Our paper sheds new light on the real effects of financial markets and suggests that the informational role of security prices is much broader than what we have thought. This paper was accepted by Gustavo Manso, finance.

Outside Insiders: Does Access to Information Prior to an IPO Generate a Trading Advantage After the IPO?

2018 ◽  
Vol 54 (1) ◽  
pp. 303-334 ◽  
Author(s):  
Umit Ozmel ◽  
Timothy E. Trombley ◽  
M. Deniz Yavuz
Keyword(s):  
Venture Capital ◽  
Initial Public Offering ◽  
Access To Information ◽  
The Public ◽  
Familiarity Bias ◽  
Information Advantage ◽  
Public Offering ◽  
Stock Picking

We investigate whether access to information prior to an initial public offering (IPO) generates a trading advantage after the IPO. We find that limited partners (LPs) of lead venture capital funds obtain high returns when they invest in newly listed stocks backed by their funds. These returns are not explained by LPs’ differing stock-picking abilities, and they are higher when LPs’ information advantage over the public is higher. LPs are more likely to invest if they have an information advantage, and access to information eliminates the familiarity bias that they display otherwise.

scholarly journals Drug Discovery Firms and Business Alliances for Sustainable Innovation

2021 ◽  
Vol 13 (7) ◽  
pp. 3599
Author(s):  
Yoshimi Harada ◽  
Huayi Wang ◽  
Kota Kodama ◽  
Shintaro Sengoku
Keyword(s):  
Drug Discovery ◽  
Initial Public Offering ◽  
New Drugs ◽  
Pharmaceutical Companies ◽  
Pharmaceutical Firms ◽  
Significant Research ◽  
Public Offering ◽  
Platform Leadership ◽  
Available Information ◽  
Startup Firms

Biotech startup firms developing pharmaceutical seeds from scientific and technological innovation are burdened by significant Research & Development (R&D) expenses, long-term R&D operations, and low probability of R&D success. To address these challenges while sustainably creating innovations and new drugs, business alliances with existing pharmaceutical companies are one of the most important issues on the management agenda. The present study explores the necessity and significance of business alliances with pharmaceutical companies for the development of drug-discovery by Japanese biotech startup firms under high uncertainty. This study investigates the types of alliances to understand the origins of sustainability of these creative activities. First, we investigate and analyze the details of the partnership and its impact on the products under development based on the publicly available information of 16 drug discovery biotech startup firms in Japan that had become public since 2010. As a result, all firms continued their operations with the funds obtained from the business alliances with pharmaceutical firms at the time of their initial public offering (IPO). In addition, 56% of these firms’ alliance projects (n = 73) were seeded-out, and 32% seeded-in, indicating that they had adopted flexible alliance strategies not limited to seed-out ones. For sustainable going concern of the biotech startup business, it is valuable to consider multiple strategic options: “in-licensing and value up”, “best-in-class”, “platform leadership” and “first-in-class” depending on the characteristics of seeds and environmental restrictions.

Friends in high places : two essays on the importance of corporate political connections

2015 ◽  
Author(s):  
◽  
Reza Houston
Keyword(s):  
Initial Public Offering ◽  
Political Connections ◽  
Target Firm ◽  
University Of Missouri ◽  
Accounting Performance ◽  
The Public ◽  
Public Offering ◽  
The University ◽  
The Impact ◽  
The Relationship

[ACCESS RESTRICTED TO THE UNIVERSITY OF MISSOURI AT AUTHOR'S REQUEST.] This study is an examination of the relationship between political connections and the undertaking of major firm events. In our first essay, presented in Chapter 3, we examine the impact politically connected appointments have on firm acquisition behavior. Using proxy statements, we create a unique database of politically connected bidders and merger targets. We find that bidders who hire connected individuals to the board or management team are more likely to avoid merger litigation. Connected bidders make more bids after the appointment. These firms also bid on larger targets. We determine there is a positive relation between the control premium and the relative of the target's connections. Connected acquirers have superior post-merger accounting performance, particularly when they acquire a connected target firm. In the second essay, presented in Chapter 4, we examine the relationship between political connections of private firms and the initial public offering process. Using registration statement information, we create a unique database of politically connected IPO firms. We find that political connections are substitutes to high-quality underwriters and big four auditors. Politically connected firms manage earnings more highly upward than non-connected firms prior to the public offering. Politically connected firms also exhibit less underpricing than non-connected firms. Politically connected IPO firms also have superior post-IPO returns relative to non-connected IPO firms.

Constraints of Time

2016 ◽  
Author(s):  
Gergely Baics
Keyword(s):  
Seasonal Cycles ◽  
Problem Of Time ◽  
Public Markets ◽  
The Public ◽  
Food Shopping ◽  
Public Market ◽  
New Yorkers

This chapter addresses the problem of time by examining the temporal geography of household provisioning. It scrutinizes the seasonal, weekly, and daily schedules of food shopping, outlining how complementary rhythms provided steady supplies to customers, while also sustaining permanent and stable trade at the public markets. The provisioning journey was structured not only by the distance one traveled to the public market but also by the conjunctures of time. Just as public markets distributed all varieties of foodstuffs to New Yorkers at a dozen privileged locations, their year-round business agglomerated food supplies of widely different seasonal cycles. Not surprisingly, seasonality first and foremost determined the frequency of residents' marketing visits.

scholarly journals Exit Decision of Venture Capital Based on Linear Contract in Continuous Time: IPO or M&A

Complexity ◽  
2020 ◽  
Vol 2020 ◽  
pp. 1-19
Author(s):  
Ding Chuan ◽  
Dahai Li ◽  
Meishu Ye
Keyword(s):  
Social Welfare ◽  
Venture Capital ◽  
Interest Rates ◽  
Initial Public Offering ◽  
Continuous Time ◽  
Production Efficiency ◽  
Venture Capitalists ◽  
Social Welfare Maximization ◽  
Incentive Problem ◽  
Public Offering

Based on the assumption that the long-term value of a venture capital satisfies the algebraic Brownian motion, we develop a continuous-time exit model of venture capital under different exit modes, namely, initial public offering (IPO) and mergers and acquisitions (M&A). The employee incentive problem is analyzed jointly with the exit decision of the firm in terms of the exit timing and the exit mode. Further, the problem of capital exit is considered from two perspectives, namely, optimal venture capital and social welfare maximization, and the differences between these exit decisions are compared. Our model predicts that the timing of an IPO, the purpose of which is to maximize the utility of the capitalists, lags behind the exit timing, whose purpose is to maximize social welfare. Using a numerical analysis, this paper also proves that increasing the production efficiency, lowering the interest rates, and improving risk management can make the exit decision of venture capitalists converge with that of maximizing social welfare.

Effectives of private equity and venture capital investments comparing with stock and bond market

2017 ◽  
Vol 18 (2) ◽  
pp. 57-70
Author(s):  
Piotr Zasępa
Keyword(s):  
Venture Capital ◽  
Private Equity ◽  
Flow Characteristics ◽  
Bond Market ◽  
Capital Investments ◽  
The Public ◽  
Public Market ◽  
Equivalent Method ◽  
Rate Of Returns ◽  
Venture Capital Investments

This paper examines approach and possibility of comparison of venture capital rate of returns with specific public benchmarks. Rate of return that are used by the public market analytics do not fit within venture capital cash flow characteristics. One of the methods that are presented in this article is Public Market Equivalent which enable simple comparison of venture capital rate of returns with effects of the public index or bond market for Bond Market Equivalent method.

Biotechnology Venture Investing and Neurodegenerative Medicine: Promise of New Approaches to Cure an Ailing Model

2014 ◽  
Vol 20 (1) ◽  
Author(s):  
Dushon DeVere Riley ◽  
Mark Cochran
Keyword(s):  
Public Health ◽  
Venture Capital ◽  
Neurodegenerative Diseases ◽  
New Technologies ◽  
Genetic Knowledge ◽  
Venture Capitalists ◽  
Financial Model ◽  
The Public ◽  
Public Market ◽  
Public Health Challenges

Neurodegenerative diseases are one of the leading public health challenges of the next 50 years. Pharmaceutical therapies have traditionally targeted the later stages of neurodegenerative diseases; however, this strategy - as the recent failures of clinical trials for Alzheimer’s drugs have highlighted - has been unsuccessful. Venture capital has underperformed as well during this time, as many new companies have been unable to maintain growth once they reach the public market and have produced less than desirable returns. As a result, venture capitalists have opted for later-stage financing. Nevertheless, new technologies are being developed to answer the question of how to best address neurodegeneration. New tools of detection will allow for much earlier diagnosis and a much greater chance of discovering and applying effective treatments. Realizing that genetic knowledge is insufficient to produce innovative treatments for neurodegenerative diseases, scientists have begun to apply the genetic knowledge attained towards a future of individualized treatments. As these new tools of detection converge with an increased ability to create very precise individual solutions, the risk of successful future investments should come down and provide the potential for outsized returns that have traditionally governed the venture capital financial model.

Venture Capital Reputation, Post-IPO Performance, and Corporate Governance

2011 ◽  
Vol 46 (5) ◽  
pp. 1295-1333 ◽  
Author(s):  
C. N. V. Krishnan ◽  
Vladimir I. Ivanov ◽  
Ronald W. Masulis ◽  
Ajai K. Singh
Keyword(s):  
Corporate Governance ◽  
Firm Performance ◽  
Venture Capital ◽  
Market Share ◽  
Initial Public Offering ◽  
Performance Measures ◽  
Ipo Performance ◽  
The Past ◽  
Long Run ◽  
Public Offering

AbstractWe examine the association of a venture capital (VC) firm’s reputation with the post-initial public offering (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 that 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.

Entrepreneurial Litigation and Venture Capital Finance

2017 ◽  
Vol 52 (5) ◽  
pp. 2217-2250 ◽  
Author(s):  
Douglas Cumming ◽  
Bruce Haslem ◽  
April Knill
Keyword(s):  
Venture Capital ◽  
Initial Public Offering ◽  
Venture Capitalists ◽  
Public Offering

This article empirically examines the interaction between entrepreneurial plaintiff firm litigation and venture capital (VC). The data indicate that, relative to nonplaintiffs, firms that litigate prior to (after) obtaining VC i) receive financing from less (more) reputable venture capitalists (VCs), ii) are subject to greater (similar) oversight by VCs, iii) receive less (more) VC funding, iv) are more likely to exit through an initial public offering than through an acquisition, and v) are less likely to be liquidated when litigation occurs after VC financing. The results are robust to different specifications, methodologies, and endogeneity checks.

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