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Annualized Returns of Venture-Backed Public Companies Categorized by Stage of Financing: An Empirical Investigation of IPOS in the Last Three Decades

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Author Info

  • Yochanan Shachmurove

    (University of Pennsylvania)

Abstract

Although the national media has given increased attention to the venture capital process, misconceptions continue to proliferate. One often hears about the incredible capital gains of IPO share prices. This paper refutes the myth that investors demand very high rates of return to compensate for the risks involved in financing ventures. The paper investigates actual performance of 3,063 Initial Public Offerings of companies that were backed by venture capital from 1968 until 1998 stratified by current actively and inactively traded companies and by stages of financing. The main findings are that annualized returns are different for current actively and inactively traded firms and for many of the stages of financing but that they are much lower than the ones reported by the media and the venture capital literature.

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Bibliographic Info

Article provided by Pepperdine University, Graziadio School of Business and Management in its journal Journal of Entrepreneurial Finance.

Volume (Year): 6 (2001)
Issue (Month): 1 (Spring)
Pages: 44-58

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Handle: RePEc:pep:journl:v:6:y:2001:i:1:p:44-58

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Related research

Keywords: Venture Capital; Venture-Backed Companies; Initial Public Offering; IPO; MBO; Seed Financing; Mezzanine;

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References

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  1. Mansfield, Edwin, 1969. "Industrial Research and Development: Characteristics, Costs, and Diffusion of Results," American Economic Review, American Economic Association, vol. 59(2), pages 65-71, May.
  2. Michael Bisesi, 1986. "Public policy and human venture capital forging a more productive business-edution link," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 5(4), pages 820-824.
  3. Gompers, Paul A., 1996. "Grandstanding in the venture capital industry," Journal of Financial Economics, Elsevier, vol. 42(1), pages 133-156, September.
  4. Admati, Anat R & Pfleiderer, Paul, 1994. " Robust Financial Contracting and the Role of Venture Capitalists," Journal of Finance, American Finance Association, vol. 49(2), pages 371-402, June.
  5. Colin Mason, 1999. "Editorial. Venture Capital: Rationale, aims and scope," Venture Capital, Taylor & Francis Journals, vol. 1(1), pages 1-46, January.
  6. Chan, Yuk-Shee, 1983. " On the Positive Role of Financial Intermediation in Allocation of Venture Capital in a Market with Imperfect Information," Journal of Finance, American Finance Association, vol. 38(5), pages 1543-68, December.
  7. Cooper, Ian A & Carleton, Willard T, 1979. "Dynamics of Borrower-Lender Interaction: Partitioning Final Payoff in Venture Capital Finance," Journal of Finance, American Finance Association, vol. 34(2), pages 517-29, May.
  8. Berglof, Erik, 1994. "A Control Theory of Venture Capital Finance," Journal of Law, Economics and Organization, Oxford University Press, vol. 10(2), pages 247-67, October.
  9. Gordon Murray, 1999. "Early-stage venture capital funds, scale economies and public support," Venture Capital, Taylor & Francis Journals, vol. 1(4), pages 351-384, October.
  10. Mansfield, Edwin, 1986. "The R&D Tax Credit and Other Technology Policy Issues," American Economic Review, American Economic Association, vol. 76(2), pages 190-94, May.
  11. Megginson, William L & Weiss, Kathleen A, 1991. " Venture Capitalist Certification in Initial Public Offerings," Journal of Finance, American Finance Association, vol. 46(3), pages 879-903, July.
  12. Mansfield, Edwin, et al, 1977. "Social and Private Rates of Return from Industrial Innovations," The Quarterly Journal of Economics, MIT Press, vol. 91(2), pages 221-40, May.
  13. Paul Gompers & Josh Lerner, 1998. "Conflict of Interest in the Issuance of Public Securities: Evidence from Venture Capital," NBER Working Papers 6847, National Bureau of Economic Research, Inc.
  14. Susanne Espenlaub & Ian Garrett & Wei Peng Mun, 1999. "Conflicts of interest and the performance of venture-capital-backed IPOs: A preliminary look at the UK," Venture Capital, Taylor & Francis Journals, vol. 1(4), pages 325-349, October.
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Cited by:
  1. Yochanan Shachmurove, 2004. "The Reality of IPO Performance: An Empirical Study of Venture-Backed Public Companies," PIER Working Paper Archive 04-030, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  2. Amir Shachmurove & Yochanan Shachmurove, 2004. "Annualized and Cumulative Returns on Venture-Backed Public Companies Categorized by Industry," Journal of Entrepreneurial Finance, Pepperdine University, Graziadio School of Business and Management, vol. 9(3), pages 41-60, Fall.
  3. Amir Shachmurove & Yochanan Shachmurove, 2004. "Choosing Between Promising and Crowded Industries: How Does the Venture Capital Industry Fare in Each?," PIER Working Paper Archive 04-044, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  4. Yochanan Shachmurove, 2009. "Economic Geography, Venture Capital and Focal Points of Entrepreneurial Activity," PIER Working Paper Archive 09-032, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.

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