The Influence of Corporate Venture Capital Investment on the Likelihood of Attracting a Prestigious Underwriter

Prior research underscores the critical role of prestigious underwriters in shaping the success of the initial public offering (IPO) process, particularly for young firms that do not have much of a track record. Recent scholarly work has shown that the likelihood of a start-up securing a lead prestigious underwriter is influenced by its ability to provide important signals of organizational legitimacy, as conveyed in the employment experiences of the firm's top management team. Building further on theories of organizational attention and decision making, this chapter seeks to examine whether lead prestigious underwriters also consider different types of signals of organizational legitimacy that might be suggested by the existence of ties between young firms and corporate venture capital (CVC) investors.Analysis of 1830 IPOs during 1990–1999 indicates that having a tie to CVC investor provides added legitimacy value over that provided by independent venture capital investors alone. Further analysis of 315 IPOs affiliated with CVC investors suggests that prestigious underwriters pay attention primarily to endorsement-rather than resource-related signals of legitimacy when it comes to CVC ties, and that they pay more attention to investment screening prominence than to business management prominence when it comes to endorsement legitimacy. We also found that prestigious underwriters pay more attention to signals of IPO legitimacy provided by CVC investment in IPO markets that are hot than those that are cold. Our findings provide important theoretical extensions to the study of the certification value of interorganizational affiliations and its impact on IPO success.