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The performance of venture-backed IPOs in Europe

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  • Wolfgang Bessler
  • Martin Seim

Abstract

The importance of venture capitalists (VCs) to the success of start-up firms and for economic growth has been well documented in the US. This study investigates the performance of European venture-backed initial public offerings (IPOs) during the period from 1996 to 2010 which includes two stock market cycles and IPO waves. We focus on underpricing (UP) and long-run performance and differentiate between various stock exchanges and firm characteristics. Our findings indicate that venture-backed IPOs generate positive returns for some time after the IPO. This result holds not only for investments in the primary market but also for investments made later on in the secondary market. During the new economy period (1996 to 2003) IPOs have higher UP and first year returns compared to IPOs during the second stock market cycle (2003 to 2010), but in the long run there are no significant performance differences. We also find higher abnormal returns for venture-backed firms that went public on main markets and for larger VC-backed firms for nearly three years after going public. Most importantly, the group of venture-backed IPOs consistently and significantly outperforms a large group of non-venture-backed IPOs. Overall, we provide empirical evidence that venture-backed IPOs in Europe generate positive and superior returns to investors.

Suggested Citation

  • Wolfgang Bessler & Martin Seim, 2012. "The performance of venture-backed IPOs in Europe," Venture Capital, Taylor & Francis Journals, vol. 14(4), pages 215-239, October.
    • Handle: RePEc:taf:veecee:v:14:y:2012:i:4:p:215-239
    DOI: 10.1080/13691066.2012.702447
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    References listed on IDEAS

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    1. John Haltiwanger & Ron S. Jarmin & Javier Miranda, 2010. "Who Creates Jobs? Small vs. Large vs. Young," Working Papers 10-17, Center for Economic Studies, U.S. Census Bureau.
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    Cited by:

    1. Signori, Andrea, 2018. "Zero-revenue IPOs," International Review of Financial Analysis, Elsevier, vol. 57(C), pages 106-121.
    2. Reber, Beat, 2017. "Does mispricing, liquidity or third-party certification contribute to IPO downside risk?," International Review of Financial Analysis, Elsevier, vol. 51(C), pages 25-53.
    3. Bessler, Wolfgang & Beyenbach, Johannes & Rapp, Marc Steffen & Vendrasco, Marco, 2021. "The global financial crisis and stock market migrations: An analysis of family and non-family firms in Germany," International Review of Financial Analysis, Elsevier, vol. 74(C).
    4. Artie W. Ng & Douglas Macbeth & Leslie S. C. Yip, 2017. "Exploring performance drivers for technology-based ventures from early stage to expansion: perspectives of venture capitalists," Venture Capital, Taylor & Francis Journals, vol. 19(4), pages 335-359, October.
    5. Steven D. Dolvin & Stephanie A. Fernhaber, 2014. "Seasonal Affective Disorder and IPO underpricing: implications for young firms," Venture Capital, Taylor & Francis Journals, vol. 16(1), pages 51-68, January.
    6. Wolfgang Bessler & Martin Seim, 2013. "Venture capital and IPO waves in Europe: an analysis of firm and performance characteristics," Chapters, in: Mario Levis & Silvio Vismara (ed.), Handbook of Research on IPOs, chapter 15, pages 295-326, Edward Elgar Publishing.
    7. Dorian Proksch & Wiebke Stranz & Nino Röhr & Cornelia Ernst & Andreas Pinkwart & Michael Schefczyk, 2017. "Value-adding activities of venture capital companies: a content analysis of investor’s original documents in Germany," Venture Capital, Taylor & Francis Journals, vol. 19(3), pages 129-146, July.

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