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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

  • Yochanan Shachmurove

    (University of Pennsylvania)

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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File URL: http://jefsite.org/RePEc/pep/journl/jef-2001-06-1-d-shachmurove.pdf
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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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  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. 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.
  6. 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.
  7. 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.
  8. Yuk-Shee Chan., 1982. "On the Positive Role of Financial Intermediation in Allocation of Venture Capital in a Market with Imperfect Information," Research Program in Finance Working Papers 127, University of California at Berkeley.
  9. 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.
  10. 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.
  11. Colin Mason, 1999. "Editorial. Venture Capital: Rationale, aims and scope," Venture Capital, Taylor & Francis Journals, vol. 1(1), pages 1-46, January.
  12. 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.
  13. 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.
  14. Gompers, Paul A., 1996. "Grandstanding in the venture capital industry," Journal of Financial Economics, Elsevier, vol. 42(1), pages 133-156, September.
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