Venturing Beyond the IPO: Financing of Newly Public Firms by Venture Capitalists

72 Pages Posted: 18 Apr 2016 Last revised: 11 Dec 2019

See all articles by Peter Iliev

Peter Iliev

Pennsylvania State University - Department of Finance

Michelle Lowry

Drexel University; European Corporate Governance Institute (ECGI)

Date Written: December 11, 2019

Abstract

Contrary to conventional wisdom, we document that approximately 15% of VC-backed firms raise additional capital from VCs in the five years after going public. We propose two explanations for why firms revert to VC financing post-IPO. First, we hypothesize that VC participation in post-IPO financing represents an efficient solution to informational problems that would otherwise constrain firms’ abilities to exploit value-increasing investments. Analyses of firm and VC characteristics, together with the finding that these investments are value-increasing for both VCs and the underlying companies, support this hypothesis. We find no support for the alternative that agency conflicts motivate these investments.

Keywords: Venture Capitalists, Private Equity, Newly Public Firms, Equity Issuance, IPOs

Suggested Citation

Iliev, Peter and Lowry, Michelle B., Venturing Beyond the IPO: Financing of Newly Public Firms by Venture Capitalists (December 11, 2019). Journal of Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2766125 or http://dx.doi.org/10.2139/ssrn.2766125

Peter Iliev

Pennsylvania State University - Department of Finance ( email )

348 Business Building
University Park, PA 16802
United States

Michelle B. Lowry (Contact Author)

Drexel University ( email )

3141 Chestnut St
Philadelphia, PA 19104
United States

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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