The Journal of Finance - 2020 - ILIEV - Venturing Beyond The IPO Financing of Newly Public Firms by Venture Capitalists

15406261, 2020, 3, Downloaded from https://onlinelibrary.wiley.com/doi/10.1111/jofi.12879 by University Of Sheffield, Wiley Online Library on [04/02/2023].
See the Terms and Conditions (https://onlinelibrary.wiley.com/terms-and-conditions) on Wiley Online Library for rules of use; OA articles are governed by the applicable Creative Commons License
THE JOURNAL OF FINANCE • VOL. LXXV, NO. 3 • JUNE 2020
Venturing beyond the IPO: Financing of Newly

Public Firms by Venture Capitalists
PETER ILIEV and MICHELLE LOWRY∗
ABSTRACT
Contrary to conventional wisdom, we document that approximately 15% of venture
capitalist (VC)-backed firms raise additional capital from VCs in the five years af-
ter going public. We propose two explanations for why firms revert to VC financing
post-IPO (initial public offering). 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. Analy-
ses of firm and VC characteristics, together with the finding that these investments
are value-increasing for both VCs and the underlying companies, support this hy-
pothesis. We find no support for the alternative that agency conflicts motivate these
investments.
A LARGE BODY OF LITERATURE documents that venture capitalists (VCs) focus

on young private companies, generally in high-tech industries. As Metrick and
Yasuda (2011) succinctly state, “A VC invests only in private companies. . . .
A VC’s primary goal is to maximize its financial return by exiting investments
through a sale or an initial public offering (IPO).” We show, however, that
these same investors fund companies after the IPO as well. In a sample of
private firms that go public for the first time, 15% of the firms backed by
VC financing prior to the IPO received additional funding from VCs within
the first five years after the IPO. Approximately half of these post-IPO VC
financings were from the same VC that funded the company prior to the
IPO. Press releases on these financings provide suggestive evidence of their
importance to the underlying companies. For example, when Fatbrain.com
received funding from their pre-IPO VC (Vulcan Ventures) one year after going
public, the company highlighted how the funding would help them bring their
∗ Peter Iliev is with Pennsylvania State University. Michelle Lowry is with Drexel University.
We thank Dan Bradley; Casey Dougal; Matt Gustafson; Fabrice Herve; Jay Ritter; Anil Shivdasani
(a referee); Ralph Walkling; participants at the 2015 ENTFIN Conference at Lyon Business School,
2017 SFS Finance Cavalcade, 2017 Western Finance Association Meeting; and seminar partici-
pants at Aalto University, Drexel University, Pennsylvania State University, Rutgers University,
Purdue University, Temple University, the University of Arizona, and the University of Tennessee
Smokey Mountains Conference. Michelle Lowry thanks the Raj & Kamla Gupta Governance In-
stitute for financial support. We have read The Journal of Finance disclosure policy and have no
conflicts of interest to disclose.
Correspondence: Michelle Lowry, Drexel University, finance department, 3220 Market St,
Philadelphia, PA 19104; e-mail: michelle.lowry@drexel.edu.
DOI: 10.1111/jofi.12879

C 2020 the American Finance Association
1527
15406261, 2020, 3, Downloaded from https://onlinelibrary.wiley.com/doi/10.1111/jofi.12879 by University Of Sheffield, Wiley Online Library on [04/02/2023]. See the Terms and Conditions (https://onlinelibrary.wiley.com/terms-and-conditions) on Wiley Online Library for rules of use; OA articles are governed by the applicable Creative Commons License
1528 The Journal of FinanceR
product to market, stating that, “We view the increased support of Vulcan as
a powerful endorsement of our success.”1
Viewing an IPO as the point at which public equity financing becomes
cheaper than VC financing, the patterns above raise the question of what leads
firms to revert to VC financing after going public. We focus on two factors that
potentially cause the relative cost of VC financing to decrease, and cause VC
financing to dominate other forms of capital for newly public firms. We refer to
these as the Information Asymmetry Hypothesis and the Agency Hypothesis.
The Information Asymmetry Hypothesis posits that VC participation in post-
IPO financing is an efficient solution to informational problems that would oth-
erwise constrain firms’ ability to exploit value-increasing investments. Many
newly public firms are undergoing rapid growth and change, making them sen-
sitive to unexpected shocks. Akerlof (1970) and Myers and Majluf (1984) show
that high information asymmetry in such firm-years can make it prohibitively
costly to raise public equity because investors rationally conclude that on aver-
age such firms are overvalued. Further, for many firms, a lack of collateralizable
assets prevents debt from being a viable alternative. Absent an intermediary
that has a comparative advantage in overcoming this information asymmetry,
firms are better off not raising financing, even if the lack of capital forces them
to forgo positive net present value (NPV) projects. The experience, skill set, and
information advantage of the VC give it a unique advantage in overcoming this
information asymmetry and identifying companies with positive NPV projects.
A VC’s comparative advantage, as posited by the Information Asymmetry
Hypothesis, stems from several sources. First, the VC’s prior interactions with
a given firm or with similar firms enable it to better assess “true” firm value.
Second, the VC’s in-depth industry knowledge makes it easier for management
to convey its business model and projected uses of capital. Finally, VCs have
relatively long investment time horizons, suggesting they may have less liquid-
ity pressures than other providers of capital. In sum, VCs are well positioned
to prevent a market breakdown of the type discussed by Akerlof (1970).
The Agency Hypothesis, in contrast, is based on the idea that VCs are moti-
vated by factors other than just the NPV of underlying investments. As shown
by Carpenter (2000) and discussed by Barrot (2017) and Nanda and Rhodes-
Kropf (2018), the convexity of VC compensation contracts incentivizes man-
agers to condition investment decisions on prior performance. VCs typically
earn a 2% management fee that is based on the total capital raised from lim-
ited partners (LPs), plus 20% of cumulative fund profits (commonly referred to
as carried interest). This convexity incentivizes managers of poorly performing
funds to invest in high-risk companies—they face little downside if these gam-
bles do not pay off, but substantial upside if they do. At the same time, managers
of funds with high past performance are incentivized to invest in lower risk com-
panies, to lock in the carried interest.2 In sum, the structure of compensation
1See FatBrain.com’s November 1, 1999 8-K filing in the EDGAR system.

2The incentive to protect gains is potentially exacerbated by the concave relation between past
VC performance and fund size, which Kaplan and Schoar (2005) attribute to VCs’ voluntarily
Venturing beyond the IPO 1529
contracts can motivate VCs to prioritize risk over NPV. Although public firms
may be either high or low risk on average, the key potential advantage of public
firms is their higher liquidity, which enables VCs to lock in gains more quickly.
VC investments in public firms generally represent private investments in pub-
lic equity (PIPEs). In such investments, the investor can sell shares any time
after the shares are registered, typically three to four months after the offering.
Agency-related factors are likely to be particularly strong among young VC
firms. Gompers (1996) concludes that younger VC firms have greater needs
to establish a strong record quickly, so as to increase their ability to raise
follow-on funds. Lee and Wahal (2004), Tian and Wang (2014), and Barrot
(2017) provide additional support for such dynamics.
To test these two alternative hypotheses, we examine the post-IPO VC
financings from a variety of angles. Our first set of tests examines the charac-
teristics of firm-years with post-IPO VC financing, and the types of VCs that
provide this financing, using measures for the extent of a firm’s information
asymmetry, market conditions, the VC’s information advantage, and the VC’s
agency costs. We contrast the relevance of these factors across four forms of
financing: seasoned equity offerings (SEOs), syndicated loans, PIPEs in which
no VC belongs to the syndicate (which we heretofore refer simply to as PIPEs),
and post-IPO VC financings.3 Among our sample of venture-backed IPO firms,
68% raise additional capital within five years of going public through one of
these means. The lowest percentage relies on PIPEs (10%) and the greatest
percentage relies on syndicated loans (41%). The percentage of firms raising
capital from a VC, 15%, lies between these two extremes.
Differences in firm characteristics across these various forms of financing are
striking. Most pertinent to our analysis, only post-IPO VC financings are char-
acterized by firms with particularly high information asymmetry and by the
pre-IPO VC investors (which are more likely than any other VC to invest after
the IPO) having a particularly high comparative advantage in overcoming this
asymmetry. None of the other three forms of post-IPO financing is characterized
by both these features. This difference is consistent with firms strategically
choosing the optimal form of financing, and with information asymmetry being
a driving factor behind a firm’s decision to turn to VCs for this financing.
Tests at the VC level, which enable us to measure the information advantage
of potential VC investors more precisely, provide further support for the
Information Asymmetry Hypothesis. Across all VCs in our sample, those with
the greatest information advantage, for example those that have previously
invested in the firm or that serve on the firm’s Board of Directors, are consis-
tently significantly more likely to provide such financing. Across a battery of
specifications, we find no evidence that VCs’ agency-related motivations, for
staying smaller (because VC success is not scalable). The implication is that the marginal benefits
of performance are more limited above certain thresholds.
3 Most post-IPO VC financings are structured as PIPEs, but for clarity we refer to them as
post-IPO VC financings.
example, as related to the fund’s prior performance or the age of the VC firm,
are associated with their propensity to provide financing to recent IPO firms.
Our second set of tests focuses on returns of firms with these post-IPO
financings, a dynamic for which the two hypotheses offer distinct predictions.
Specifically, we examine VCs’ returns on these investments, stock returns
around post-IPO financing announcements, and stock returns over longer
horizons following these external financings. Using data on the precise terms
at which VCs invest, we find that over the 12 months following the investment,
VCs earn abnormal returns of approximately 31 percentage points. Our results
suggest that these high returns are related to VCs’ comparative advantage
in overcoming information asymmetry, as other investors providing similar
types of PIPE financing without VC involvement do not earn similar returns.
For example, analogous returns among hedge funds, which have fewer ties to
the companies they invest in and less experience with young firms, are only 4
percentage points over the same 12-month period.
If a VC investor has a unique ability to overcome information asymmetry,
then VC financings should be associated with positive abnormal stock returns
at announcement, for two reasons. First, VC financings should provide a
positive signal regarding firm value. Second, post-IPO VC financings should
cause firm value to be higher than it otherwise would be, if firms were unable
to obtain financing at equally good terms from other sources. Consistent with
these predictions, abnormal returns over the (–2, +10) window equal 7%.
Moreover, abnormal returns are greatest when firms likely face the most
frictions in raising capital from other sources: 11% to 12% during periods of
lower market returns and more volatile market returns, compared to 2% to 5%
in periods of greater stability and stronger market performance. We also find
that the abnormal returns are greatest, 14% to 15%, among cases in which
the VC has a director on the board and/or owns shares prior to the financing.
In aggregate, both the positive sign on average returns and the subsample
differences provide strong support for the Information Asymmetry Hypothesis,
whereas they do not support the Agency Hypothesis.
We find no evidence that the high announcement returns reverse over time.
This result contrasts with the negative average long-run abnormal returns
observed after PIPE financings (see, e.g., Hertzel et al. (2002)). We also find
no evidence that firms underperformed prior to the post-IPO VC financing.
Finally, we also find that VC investments are significantly more likely than
other PIPE investments to include board representation, consistent with a
longer term commitment to the company. VCs’ long-term commitments to
companies suggest that liquidity is not the primary motivation behind these
investments.
In sum, results from multiple tests provide consistent support for the
Information Asymmetry Hypothesis. VCs have a unique ability to identify
positive NPV investment opportunities among newly public firms, and these
investments benefit VC firm investors. In the final part of the paper, we go a
step further and examine whether these financings have a positive causal effect
on the underlying firms. We predict that a newly public firm’s ability to raise
capital from their VC investor reduces the risk related to raising external
capital and thus should be valuable.4
To empirically examine the benefits of VC support and the extent to which
the market prices such benefits, we rely on the fact that one of the strongest
predictors of whether a VC invests after the IPO is whether it invested prior
to the IPO. We consider the following strategy: we go long companies backed
prior to their IPO by a VC with a high tendency to fund newly public firms after
the IPO, and we short all other VC-backed IPOs. Consistent with post-IPO
VC financings having positive value, returns on this long-short portfolio are
significantly positive. We also find that companies are significantly less likely
to delist for poor performance if they were funded prior to the IPO by a VC
with an above-median tendency to fund companies post-IPO. Interestingly,
these findings are concentrated among firms backed prior to the IPO by lower
ranked VCs, that is firms more likely to face challenges in raising capital.
Taken together, these results are consistent with the option to revert back to
VC financing after going public having positive value.
Our paper contributes to the literature on financial constraints and the
factors that lead intermediaries to specialize in different types of financing.
Although there is disagreement on how to best identify financially constrained
firms (see, e.g., Kaplan and Zingales (1997), Whited and Wu (2006), Hadlock
and Pierce (2010), Farre-Mensa and Ljungqvist (2016)), it is widely agreed
that access to capital is critical and information asymmetry can impede access
to capital. Hertzel, Huson, and Parrino (2012) conclude that newly public firms
raise capital in stages to overcome the costs related to information asymmetry.
Diamond (1984), Ramakrishnan and Thakor (1984), and Fama (1985) argue
that a single private lender can mitigate information asymmetry, and Boot
(2000), Bharath et al. (2011), and Hadlock and James (2002) show that the
advantages of external financing are greater when firms establish long-term
relationships with banks. Our findings suggest that VCs’ industry expertise
enables them to play a similar role in newly public firms. Our findings
also highlight the extent to which many newly public firms are financially
constrained. Despite often having substantial cash holdings, their high growth
trajectories and high information asymmetry result in insufficient access to
either debt or equity to fulfill their capital demands.
Our paper also contributes to the literature on the role of VCs. Sahlman
(1990), Lerner (1995), and Gompers and Lerner (1996), among others, high-
light VCs’ role in young private firms, where VCs’ presumed objective is to
exit through an IPO or acquisition. A small number of papers examine VCs’
investments in public firms. Chaplinsky and Haushalter (2012) examine VCs’
investments across a broad spectrum of public firms, focusing on the extent
to which VCs profit from these investments, and both Celikyurt, Sevilir, and
4 For example, Stiglitz and Weiss (1981) develop a model in which banks that face informa-
tionally asymmetric borrowers do not offer loans at higher rates because this would lead to more
bankruptcies. The result is unfunded projects in equilibrium.
Shivdasani (2012) and Dai (2007) focus on later stages in firms’ life cycles.5
In contrast to these papers, we focus on VCs’ investments within the first few
years after the IPO, a unique point in firms’ life cycles when VCs have a strong
comparative advantage in overcoming information asymmetry. To the best of
our knowledge, we are the first to examine the ways in which VCs work with
newly public firms to alleviate problems related to financial constraints.
The remainder of the paper is organized as follows. In Section I, we describe
the data and present descriptive statistics. In Section II, we investigate
whether the types of firms receiving this financing and the types of VCs
providing it are more consistent with information asymmetry factors or agency
factors. In Section III, we examine the returns to the VCs providing this
financing, and in Section IV, we provide evidence on the firms’ market perfor-
mance around these post-IPO VC investments. In Section V, we investigate
whether firms benefit from the availability of this financing. Finally, Section VI
concludes.
I. Data and Descriptive Statistics

We obtain our sample of IPO firms from Thomson Financial SDC Platinum,
and we omit real estate investment trusts (REITs), American depository
receipts (ADRs), closed-end funds, unit offerings, reverse leveraged buyouts
(LBOs), and IPOs with an offer price less than five dollars.6 Using data from
the SDC Platinum VentureXpert Database, we further limit our sample to
IPOs with at least one pre-IPO VC financing round, and we require all firms
to have Compustat data and a CRSP price within the first 10 trading days
after the IPO. This “SDC sample” consists of 2,459 VC-backed IPOs between
1985 and 2010. We stop the sample in 2010 to enable us to collect five years of
data on the post-IPO sources of financing for these firms.
A. Post-IPO VC Financings
The VentureXpert Database of Thomson Financial SDC Platinum includes
VC financing rounds that occur both prior to as well as following the IPO. We
focus on VC financings that occur up to five years after the IPO. The five-year
cutoff follows the definition of newly public firms used in prior literature
(see, e.g., Field, Lowry, and Mkrtchyan (2013)). We omit cases in which firms
received VC financing within the first seven days after the IPO because in
many of these cases the VC stated its intention to invest within the prospectus.
5 Celikyurt et al. (2012) find that VCs frequently sit on the boards of mature companies, but
they emphasize that many of these companies have been public for many years and were never
VC-backed. Dai (2007) similarly focuses on older firms, and he focuses on the effects of investor
identity in providing PIPE-type financing.
6 To identify reverse LBOs, we rely on the SDC flag for IPOs in the 1985 to 1987 and 1993 to
1995 periods, we thank Laura Field for providing data on IPOs between 1988 and 1992 (as used
in Field and Field and Karpoff (2002)), and we read through the company background portion of
prospectuses for IPOs in 1996 and thereafter.
Across the 1985 to 2010 sample period, Thomson data identify 29% of
VC-backed IPO firms as receiving venture financing subsequent to the IPO.
Although much of the literature relies on Thomson data similar to those
described above to analyze VC investments prior to the IPO, to err on the side
of caution we conduct a substantial data-verification exercise to confirm the
validity of the post-IPO VC investments. Specifically, we search SEC filings on
EDGAR to verify each VC investment within five years of the IPO (as recorded
in VentureXpert). Because EDGAR filings begin in 1995, this restricts our
sample to the 1,755 IPOs between 1995 and 2010.7 Our final sample consists
of 268 verified cases of post-IPO VC investments across a total of 1,755 IPOs
over the 1995 to 2010 period—a rate of 15%. Because not all VC financings
would be required to be reported to the SEC, this “verified sample” likely
understates the extent of such financings. Nevertheless, to be conservative we
rely on this sample throughout the remainder of the paper.
Figure 1 depicts the rates of post-IPO VC financing using the verified sample.
Each year, between 6% and 20% of all VC-backed IPO firms receive additional
VC funding after the IPO (solid line).8 We observe some evidence of a time-
series pattern, with companies whose IPOs were followed by market downturns
being more likely to turn to VCs for post-IPO financing. This is consistent with
newly public companies finding it difficult to raise external capital during
such periods. Of the 268 firms with post-IPO VC financing, 166 (62%) receive
funding from a VC that also funded the firm prior to the IPO (dashed line).
Although VC funds’ ability to invest in firms after they go public is poten-
tially constrained by the 10-year average fund life, two factors mitigate this
constraint. First, VC funds can request extensions, and anecdotal evidence
suggests they often do. To quote from a 2015 Wall Street Journal article,
“About 12% of (private equity) funds liquidated last year had wound up by
their 10th year. A further 29% had liquidated within 12 years, 33% by the 14th
year, 14% by year 16, 7% by year 18 and 5% by year 19.”9 Second, in some
cases in which the same VC firm invested both prior to and after the IPO, the
post-IPO investment was made by a follow-on fund.10
For the 268 firms with post-IPO VC financing, we hand-collect data from
proxy statements on ownership and board seats held by each VC as of the
7 Company filings in our search include registration statements of new publicly traded securities
(S-3 and S-1), statements of beneficial ownership (13G), announcements of significant company
events (8K), and announcements of material changes in the holdings of company insiders (Form
4).
8 Figure IA.1 in the Internet Appendix shows analogous patterns using the full Thomson data
sample, regardless of whether we can confirm the financings via SEC filings. The Internet Appendix
is available in the online version of this article on The Journal of Finance website.
9 “Average private equity fund life span exceeds 13 years,” Wall Street Journal March 31, 2015,
https://blogs.wsj.com/privateequity/2015/03/31/average-private-equity-fund-life-span-exceeds-13-
years/.
10 We can identify the VC fund that participated in each round in approximately 72% of the
cases with both pre-IPO and post-IPO funding. In 58% of these cases, we find that the same fund
that provided financing prior to the IPO also provided financing after the IPO.
Figure 1. Fraction of VC-backed firms that receive VC financing after the IPO. Our ini-
tial sample consists of VC-backed IPOs between 1995 and 2010, defined as IPOs for which SDC
identifies the company as having received funding from a VC prior to the IPO. We exclude REITs,
ADRs, closed-end funds, unit offerings, reverse LBOs, and IPOs with an offer price of less than $5.
We further require all firms to have CRSP and Compustat data. Post-IPO VC funding is defined
as a firm receiving funding from a VC between eight days and five years post-IPO, as reported in
VentureXpert and verified through SEC filings. The solid line shows the percentage of firms that
receive VC financing between eight days and five years post-IPO, and the dashed line shows the
percentage of firms that receive VC financing during this same interval from a VC that also funded
the company prior to the IPO. (Color figure can be viewed at wileyonlinelibrary.com)
last fiscal year-end prior to the financing.11 We obtain deal terms from the
PlacementTracker database, including details on securities purchased, terms at
which these securities were purchased, and dollar amount of the funding round.
For comparison purposes, we collect these data for both post-IPO VC financings
and PIPEs without VC participation, within our sample of newly public firms.
Although we explicitly exclude reverse LBOs, the line between VC and
private equity can be blurred, with some firms participating in both (e.g.,
Warburg Pincus). Such issues notwithstanding, the SDC VC-backed flag
appears to capture important variation. Of the 1,755 IPOs over the 1995 to
2010 period, the Thomson New Issues Database VC-backed flag equals “yes”
11 When no proxy statement precedes the financing, for example because the firm obtained
financing within the first year after the IPO, we employ data from the IPO prospectus. In total, we
obtain this information for 238 firms.
in 80% of cases. These companies tend to be younger and smaller, suggesting

that the remaining 20% of cases are more characteristic of private equity.
We find that 16.7% of startup firms (i.e., firms that are specifically labeled
as VC-backed) obtain post-IPO financing, compared to 10.7% of the firms
that are potentially a mix of VC and private equity. This difference provides
suggestive evidence consistent with the Information Asymmetry hypothesis,
which predicts that the benefits of post-IPO financing by pre-IPO type
investors are greatest among firms with the highest information asymmetry.
For conciseness, because of the increasing ambiguity between VC and private
equity financing, and because we include many other measures of the extent of
information asymmetry that are arguably more precisely defined, we include
all 1,755 IPOs in our final sample.12 For our final sample of 1,755 IPOs, we
refer to all companies as VC-backed and to these investors as VCs.
B. Descriptive Statistics on Final Sample

The probability that a firm obtains financing after the IPO is higher in years
immediately following the IPO, with 4% to 5% of firms receiving venture fi-
nancing within each of the first two years, compared to 1% to 2% per year in the
fourth and fifth years. This probability reaches a cumulative total of slightly
above 15% by year five (see Figure IA.2 in the Internet Appendix). Appendix
A reports the frequency, by VC, of pre-IPO versus post-IPO investments. For
example, Kleiner Perkins and New Enterprise Associates were involved in a
similar number of deals, but Kleiner invested both prior to and after the IPO
in 3.2% of cases, compared to 10.2% for New Enterprise. Appendix B lists all
of the firms in which New Enterprise Associates made a post-IPO investment
within five years of the IPO as well as the SEC form on which the funding is
recorded. For completeness, we list all funding deals on SDC over the 1995
to 2010 period. We can confirm the funding on an SEC form for all but four
deals.13 We omit these four deals from our final sample.
Panel A of Table I provides descriptive statistics on the 268 firms with post-
IPO VC financing, compared to the 1,487 without. (Appendix C provides vari-
able descriptions.) Financial variables are calculated as of the first fiscal year-
end following the IPO. These univariate comparisons provide initial evidence
consistent with the Information Asymmetry Hypothesis. Firms with post-IPO
VC financing are significantly more likely to have negative cash flow from
operations (CFO), earn lower ROA, have higher bid-ask spreads, be more R&D
intensive, and be younger. These findings are consistent with results in Brophy,
12 We also include a control for Startup Firm in the empirical tests. As we discuss below, this
measure is consistently insignificant—a fact that further mitigates concerns related to our sample
composition.
13 Across the four cases in which we do not find an SEC form, we observe an increase in shares
outstanding around this time. In many cases, the increase in shares outstanding times the share
price at that time is approximately equal to the round amount. This evidence is consistent with
our conservative sample construction approach leading us to understate the frequency of these
post-IPO VC investments.
Table I
Descriptive Statistics
Our initial sample consists of VC-backed IPOs between 1995 and 2010, defined as IPOs for which
SDC identifies the company as having received funding from a VC prior to the IPO. We exclude
REITs, ADRs, closed-end funds, unit offerings, reverse LBOs, and IPOs with an offer price of less
than $5. We further require all firms to have CRSP and Compustat data. Post-IPO VC funding
is defined as a firm receiving funding from a VC between eight days and five years post-IPO, as
reported in VentureXpert and verified through SEC filings. Panel A provides descriptive statistics
for the first year with post-IPO data. Column (1) reports means for the 268 firms with post-IPO VC
funding, and column (2) reports means for the 1,487 firms without post-IPO VC funding, though
missing data cause some of the VC variables to be based on fewer observations. In the third column,
***, **, and * indicate that the difference is significant at the 1%, 5%, and 10% levels, respectively.
Panel B reports descriptive statistics on the deal terms, across the 301 rounds of 240 unique
companies with post-IPO VC investments and for which data are available on PlacementTracker.
Panel C reports descriptive statistics for the subsample of 238 unique companies that received
post-IPO VC financing and for which we have data on the firm’s board composition and ownership
structure as of the last proxy prior to the post-IPO VC financing. Variable descriptions are provided
in Appendix C.
Panel A: Descriptive Statistics in Firm Years after IPO
Firms with Post-IPO Firms without

VC Funding (268 Post-IPO VC Funding
Firms) (1,487 Firms) Difference
(1) (2) (3)
Bid-Ask Decile 6.705 6.096 0.609***

Negative CFO 0.787 0.527 0.261***
R&D-to-Assets 0.389 0.220 0.169***
Sales 127.929 188.717 −60.788
ROA −0.733 −0.336 −0.397***
CAPX-to-Assets 0.089 0.085 0.004
Tobin’s Q 5.830 6.049 −0.219
Time to IPO 4.340 4.693 −0.353
Firm Age 7.713 11.607 −3.894***
Debt-to-Assets 0.289 0.277 0.012
Prior Syndicated Loan 0.284 0.323 −0.040
Tangibility 0.200 0.193 0.007
Cash-to-Assets 0.442 0.330 0.114***
Startup Company 0.854 0.785 0.069***
Total Assets 160.515 293.947 −133.432*
Initial Return 0.257 0.363 −0.106**
Firm Volatility 0.053 0.052 0.010
Avg Pre-IPO VC Industry 28.057 18.315 9.742***
Experience count
Pre-IPO VC Director Dummy 0.939 0.907 0.033
#Pre-IPO VC Funds with Low 0.925 0.615 0.310***
Success
#Pre-IPO VC Funds with High 0.577 0.568 0.009
Success
#Pre-IPO VCs that are Young 1.151 0.872 0.279***
Total VC ownership at IPO 36.943 34.798 2.145
Pre-IPO VC Funding (USD 95.033 80.491 14.542
million)
Top 10 Pre-IPO VC Dummy 0.340 0.239 0.100***
(Continued)
Table I—Continued
Panel B: Deal Terms
Post-IPO VC Investments
Mean Median Observations
Type of security sold

Gross proceeds (USD million) 32.64 17.5 301
Proceeds as percentage of 0.33 0.18 293
market cap
Convertible fixed-rate debt 0.26 0 301
Common stock 0.65 1 301
Registered 0.14 0 301
Days to registration 118.21 67 177
Deal includes warrants 0.42 0 301
Warrant coverage 0.48 0.4 126
Terms of deal
Discount 0.13 0.13 197
Board representation 0.15 0 301
Shareholder approval 0.08 0 301
Use of proceeds
Working capital 0.53 1 301
Specific project 0.37 0 301
Acquisition 0.04 0 301
Paydown 0.07 0 301
Panel C: Board Composition and Ownership Structure among Companies with Post-IPO VC
Financing
Average Number of Average

Directors (among Ownership (among
Percentage of Firms with VC Firms with VC
Companies Directors) Ownership)
(1) (2) (3)
Post-IPO VC has directors 48.3% 1.66

sitting on Board
Another VC has directors 70.2% 2.29
sitting on Board
At least one VC has directors 89.1% 2.71
sitting on Board
Post-IPO VC owns shares 45.4% 25.8%
Other VCs own shares 24.4% 15.4%
At least one VC owns shares 58.4% 26.5%
Post-IPO VC has directors 40.3% 1.72 26.5%
on Board and owns shares
Post-IPO VC has no 46.6%
directors on Board and
does not own shares
Ouimet, and Sialm (2009) for PIPEs, and in Table IA.I in the Internet Appendix
we show that there are few significant differences in company characteristics
between companies that raise capital from VCs versus those that raise capital
through other PIPEs (in which VCs are not part of the funding syndicate).
In contrast, characteristics of pre-IPO VCs differ from those of post-IPO
VCs. Firms that receive post-IPO VC funding were backed prior to the IPO
by VCs with significantly higher industry experience and higher ownership,
consistent with the providers of post-IPO funding likely having greater ability
to overcome information asymmetry. However, we also find that the pre-IPO
VCs of these firms are significantly more likely to have experienced low success
rates on recent investments, which is consistent with the Agency Hypothesis.
Finally, pre-IPO VCs are more likely to be top 10 based on Nahata’s (2008)
ranking, which is based on the dollar value of companies taken public by the
VC as a fraction of all VC-backed IPOs over the same period. We test the
robustness of these differences using multivariate tests in the next section.
Panel B of Table I presents descriptive statistics on deal terms, for deals
with available data in PlacementTracker. Our sample consists of 301 rounds
(which by definition all occur within the first five years after the IPO) across
191 unique firms. The average (median) round size is $33 ($18) million dollars,
which represents 33% (18%) of market capitalization. The majority of deals,
65%, include common stock, but deals are frequently structured to include war-
rants in an effort to capture the upside potential of the firm. Only 14% of deals
are registered at the time of financing, and on average shares are registered
118 days after the financing, which means that investors cannot sell until that
point. Investors typically invest at a discount, which is in line with findings
among broader PIPE samples (see, e.g., Chaplinsky and Haushalter (2010)).
Somewhat more unique to this sample is the rate of board representation. In
15% of deals, VC investors obtain board representation as part of the deal,
whereas Billett, Elkamhi, and Floros (2015) document that such terms are rare
among PIPEs more generally. Finally, the use of proceeds is most frequently
listed as working capital (53%), followed by funding a specific project (37%).
Panel C highlights the high level of involvement of VCs that provide post-IPO
financing, measured immediately prior to this financing. This involvement is
notable given that these financings occur up to five years after the IPO. The
Post-IPO VCs have directors sitting on the board in 48% of cases and own shares
in 45% of cases. Perhaps more surprisingly, VCs other than the one providing
post-IPO funding are also heavily involved, sitting on the board in 70% of cases.
These findings are consistent with Field, Lowry, and Mkrtchyan (2013), who
argue that VCs’ experience is useful on boards of newly public firms.
II. Factors that Influence Post-IPO Venture Investments

A. Determinants of Post-IPO VC Financing
In a Modigliani and Miller (1958) setting, firms are indifferent between
alternative forms of financing. In this section, we focus on the extent to
Figure 2. Extent to which firms rely on multiple sources of financing. The sample consists
of VC-backed IPOs between 1995 and 2010, as described in Figure 1 and Table I. The figure plots
the percentage of firms that raise capital during the first 60 months after the IPO from a VC, via a
PIPE (where no VC belongs to the funding syndicate), through an SEO, and through a syndicated
loan. (Color figure can be viewed at wileyonlinelibrary.com)
which violations of the strict assumptions underlying the theory, related to

either information asymmetry or agency costs, lead to deviations from this
indifference. In particular, we are interested in how such violations influence
a firm’s decision to revert to the VC for additional financing after going public.
Consistent with their high growth and high demands for capital, firms that
have recently gone public rely on multiple forms of financing following the IPO.
As shown in Figure 2, approximately 41% of VC-backed IPO firms have a syn-
dicated loan, 39% have a SEO, 15% receive additional VC financing, and about
10% raise equity through a PIPE, with hedge funds representing frequent
investors in PIPEs (see, e.g., Dai (2007), Brophy, Ouimet and Sialm (2009)).14
14 By our definition, PIPEs and post-IPO VC financing are mutually exclusive. In other words, a
PIPE in which we can verify that a VC is involved is not included in our PIPE sample. In addition
to these four financing types, a small percentage of newly public firm issue bonds, however such
cases are particularly rare within our sample of firms that were VC backed prior to the IPO and
thus belong to high-tech industries. Figure IA.3 in the Internet Appendix provides additional detail
regarding these financings, for example, the relative amount of capital raised over the first five
years.
Table II provides evidence on the factors that relate to these choices

regarding post-IPO financing. Looking first at Panel A, each column reports
results of a linear probability model estimation, where the dependent variable
is equal to 1 if the firm obtained the designated form of financing within the
year and 0 otherwise.15 Firms are included in the regression until they obtain
the given type of financing, or if they do not obtain this type of financing,
until the earlier of delisting or five years after the IPO. Column (1) focuses
on whether a firm obtained VC financing, column (2) on PIPEs, column (3) on
SEOs, and column (4) on syndicated loans.
Independent variables of interest include measures of information asym-
metry and agency, as well as various controls. We employ three measures of
firm-level information asymmetry. First, following Glosten and Milgrom (1985)
and subsequent empirical papers, we include the bid-ask spread, calculated
as the average spread at the last month-end preceding each 12-month period
(with the exception of year one, where it is measured as of the first month of
the year), sorted into deciles such that the highest decile includes firms with
the highest spread.16 We also include R&D-to-assets and a dummy for negative
CFO, each measured over the prior fiscal year, motivated for example by Denis
and McKeown (2017) and Opler et al. (1999). The intangible nature of R&D
investment is associated with higher information asymmetry than other forms
of investment, for example property, plant, and equipment. Among firms with
negative cash flows, estimates of firm value rely more heavily on high future
growth, and there is greater information asymmetry regarding more events
further into the future as managers cannot credibly convey future plans.
To capture variation in market-level information asymmetry, we use recent
market returns and recent market volatility. Firms are less likely to raise
equity from disperse groups of shareholders, that is through an SEO, when
market-wide information asymmetry is high. We conjecture that VCs would
have the ability to overcome such information asymmetry and thus such
financings would be less sensitive to variation in market-wide conditions.
Also related to the Information Asymmetry Hypothesis, we include two
measures of pre-IPO VCs’ information advantage. The first is a measure of
VCs’ industry expertise, which we calculate as log(1+(number of rounds that
all pre-IPO VCs had in preceding three years, within the firm’s Fama-French
49 industry)). We also include a dummy that is equal to 1 if a VC-connected
director is on the board as of the IPO.
We include three measures of agency. First, to capture poorly performing
VC funds’ greater incentives to take lottery-type gambles, we calculate the
number of pre-IPO VC funds with prior performance in the lowest quartile.
15 We estimate OLS regressions rather than logistic regression to allow the inclusion of fixed
effects.
16 See, for example, Barclay and Hendershott (2004); Vega (2006); Duarte, Han, Hartford, and
Young (2008); Bharath, Pasquariello, and Wu (2009); and Kelly and Ljungqvist (2012). We note that
a strength of the bid-ask spread, relative to firm characteristics, is that it is less sensitive to endo-
geneity concerns, for example the possibility that financial constraints cause firms to underspend
on R&D.
Table II
Comparing Sources of Post-IPO Financing, Firm-Level Regressions
The sample consists of VC-backed IPOs between 1995 and 2010, as described in Table I. Firms are included in the sample until they obtain the given
type of financing, or in the event they do not obtain this type of financing until the earlier of delisting or five years after the IPO. In Panel A, each
column reports results of a linear probability model, where the dependent variable is equal to 1 if the firm raised the specified form of financing
within the year: post-IPO VC investment, PIPE (in which no VC belongs to the funding syndicate), SEO, and syndicated loan in columns (1) to (4),
respectively. Fama-French 49 industry fixed effects are included in each regression. Panel B reports results of a multinomial logit specification, where
we define the outcome of each firm to be the first source of post-IPO financing raised (across these same four sources). Each column reports coefficients
corresponding to the respective financing source. Control variables in Panel B (not tabulated) are similar to those shown in Panel A. ***, **, and *
denote statistical significance at the 1%, 5%, and 10% levels, respectively. All variables are defined in Appendix C. In each panel, robust t-statistics
clustered at the firm level are shown in parentheses.
Post-IPO Financing Equal To:
VC Financing PIPE SEO Synd Loan

(1) (2) (3) (4)
Panel A: OLS Regressions
Information asymmetry measures

Bid-Ask Decile 0.0022** 0.0006 −0.0110*** −0.0001
(1.97) (0.64) (−4.89) (−0.08)
Negative CFO 0.0200*** 0.0168*** 0.0031 0.0230*
(2.97) (2.97) (0.22) (1.71)
R&D-to-Assets 0.0069 0.0559** −0.0275 −0.0190
Venturing beyond the IPO
(0.27) (2.35) (−0.81) (−0.81)

VC information advantage measures
Avg Pre-IPO VC Industry Experience 0.0083*** −0.0030 −0.0004 −0.0021
(2.69) (−1.11) (−0.08) (−0.44)
Pre-IPO VC Director Dummy −0.0039 −0.0080 −0.0205 −0.0164
(−0.40) (−0.87) (−0.98) (−0.78)
VC agency measures
#Pre-IPO VC Funds with Low success 0.0015 −0.0040* 0.0000 −0.0003
(0.46) (−1.68) (0.00) (−0.09)
#Pre-IPO VC Funds with High success −0.0010 −0.0012 −0.0039 −0.0035
(−0.38) (−0.67) (−0.98) (−1.18)
1541
(Continued)
Table II—Continued
1542

(1) (2) (3) (4)
#Pre-IPO VCs that are Young −0.0009 0.0016 −0.0013 −0.0007

(−0.306) (0.77) (−0.31) (−0.20)
VC pre-IPO involvement
Total VC Ownership as of IPO 0.0004*** −0.0001 0.0007*** −0.0001
(3.15) (−1.34) (2.61) (−0.43)
Log(Pre-IPO VC Funding + 1) 0.0040** 0.0034** 0.0120** −0.0019
(2.10) (2.08) (2.36) (−0.39)
Top 10 Pre-IPO VC Dummy 0.0108 0.0003 −0.0042 0.0072
(1.35) (0.06) (−0.32) (0.66)
Market condition measures
3-Mth Lagged Market Returns −0.0256 0.0037 0.2386*** −0.0183
(−0.71) (0.14) (3.49) (−0.31)
3-Mth Lagged Market Volatility 0.4966 −0.4025 0.6961 −1.3388
(0.80) (−0.96) (0.59) (−1.50)
Control variables
Log(Sales) −0.0031 −0.0050* −0.0006 0.0027
(−0.92) (−1.68) (−0.10) (0.47)
The Journal of FinanceR
ROA −0.0236** −0.0065 0.0075 0.0168

(−2.25) (−0.71) (0.60) (1.57)
CAPX-to-Assets −0.0650 −0.0187 0.2125* −0.0581
(−1.20) (−0.44) (1.89) (−0.52)
Tobin’s Q −0.0007 −0.0003 0.0007 −0.0003
(−1.18) (−0.74) (0.60) (−0.28)
Time to IPO −0.0011 −0.0007 −0.0022 −0.0008
(−1.43) (−1.29) (−1.24) (−0.57)
Years Since IPO 0.0009 0.0099*** −0.0344*** −0.0149***
(0.37) (4.84) (−7.55) (−3.72)
(Continued)

(1) (2) (3) (4)
Firm Age −0.0000 −0.0004*** 0.0008 −0.0009**

(−0.19) (−3.05) (1.51) (−2.03)
Debt-to-Assets −0.0031 −0.0027 0.0364 0.1048***
(−0.19) (−0.21) (1.16) (3.36)
Prior Syndicated Loan 0.0134** 0.0001 −0.0099 0.0845***
(2.04) (0.02) (−0.83) (6.52)
Tangibility −0.0129 0.0105 −0.0004 0.1149*
(−0.45) (0.49) (−0.01) (1.79)
Cash-to-Assets −0.0154 −0.0017 0.0032 −0.0984***
(−1.06) (−0.14) (0.11) (−3.99)
Startup Company 0.0032 −0.0131* −0.0356* −0.0130
(0.39) (−1.79) (−1.77) (−0.65)
Log(Total Assets) −0.0027 −0.0000 −0.0076 0.0168**
(−0.72) (−0.00) (−1.00) (2.44)
Initial Return −0.0106*** 0.0007 0.0018 −0.0077
(−2.77) (0.21) (0.25) (−1.17)
Adjusted R2 0.032 0.041 0.061 0.113
Observations 5,327 5,506 4,244 4,547
Panel B: Multinomial Logit: Dependent Variable is First Financing
Information asymmetry measures

Bid-Ask Decile 0.0948** 0.0020 −0.0964*** 0.0268
(2.08) (0.04) (−3.92) (1.06)
Negative CFO 0.6883** 1.4227*** −0.1029 0.2640
(2.56) (3.01) (−0.63) (1.58)
(Continued)
1543

1544

(1) (2) (3) (4)
R&D-to-Assets 0.5227 −0.1287 −0.1371 −0.7496*

(1.10) (−0.26) (−0.40) (−1.70)
VC information advantage measures
Avg Pre-IPO VC Industry Experience 0.1660 −0.0830 0.0143 −0.0406
(1.49) (−0.63) (0.22) (−0.59)
Pre-IPO VC Director Dummy −0.5382 −0.2978 −0.1228 0.0426
(−1.29) (−0.64) (−0.52) (0.18)
VC agency measures
#Pre-IPO VC Funds with Low Success 0.1236 −0.1526 −0.0555 0.0268
(1.64) (−1.48) (−0.94) (0.47)
#Pre-IPO VC Funds with High Success 0.0249 −0.1284 0.0026 −0.0506
(0.24) (−1.09) (0.05) (−0.90)
#Pre−IPO VCs that are Young −0.0784 −0.0565 −0.0324 −0.0224
(−1.07) (−0.72) (−0.64) (−0.37)
Total VC Ownership as of IPO 0.0132*** −0.0054 0.0057** −0.0021
(2.70) (−0.73) (2.06) (−0.70)
Log(Pre-IPO VC Funding + 1) 0.1694 0.2766** 0.1234*** 0.0058

(1.51) (2.07) (2.61) (0.12)
Top 10 Pre-IPO VC Dummy 0.1022 −0.3325 0.1214 0.0041
(0.42) (−1.03) (0.83) (0.02)
Market condition measures
3-Mth Lagged Market Returns 0.2618 −0.1617 2.2454*** 0.0558
(0.20) (−0.12) (2.62) (0.06)
3-Mth Lagged Market Volatility 4.4092 −16.0766 −6.9517 −15.7143
(0.18) (−0.49) (−0.40) (−1.09)
Control variables Yes Yes Yes Yes
Pseudo-R2 0.115
Observations 3,274
Analogously, to capture high-performing VC funds’ lower incentives to take

risky investments, we include the number of pre-IPO VC funds in the highest
prior performance quartile.17 We focus on pre-IPO VCs because these entities
are more likely than other VCs to fund the firm post-IPO. We define a VC fund’s
performance as the number of portfolio company exits over the preceding three
years (years –3 to -1) as a percentage of the number of unique firms in which
it invested over the three years prior to that period (years –6 to –4).18 We also
include the number of pre-IPO VC firms that are young, which we define as
six years old or less at the IPO. Gompers (1996), Barrot (2017), Tian and Wang
(2014), and Lee and Wahal (2004) show that young VCs are more sensitive to
agency issues, as they are driven to establish their reputations quickly to raise
follow-on funds.
Turning to the controls, we include total VC ownership as of the IPO, which
captures VCs’ information advantage and ability to overcome information
asymmetry. Higher total dollar investment may also reduce moral hazard
risks, to the extent that it incentivizes VCs to focus on maximizing firm value
over the long term. Other controls include additional measures of VCs’ pre-IPO
involvement (e.g., total funding, top 10 VC participation) and firm-level
variables such as age and financials.
Looking first at column (1), the results highlight the extent to which
post-IPO VC financings are characterized by both firms with high information
asymmetry and pre-IPO VCs with an advantage in overcoming such asym-
metry. Specifically, the firms have significantly higher bid-ask spreads and
are significantly more likely to have negative cash flows from operations,
and the pre-IPO VCs (which are more likely than other VCs to provide
post-IPO funding) have significantly higher industry expertise. A 6% increase
in pre-IPO VC total industry experience (which corresponds to one more round
of experience for VCs) is associated with an increase of roughly twice the
baseline probability of a post-IPO round (an implied increase of 4.98% versus
the average likelihood of a round of 4.32%).
Columns (2) to (4) show that none of the other types of post-IPO financing
is characterized by both of these features. For example, firms that raise
funds through SEOs tend to have lower information asymmetry, for example,
significantly lower bid-ask spreads. Firms that raise money through PIPEs
represent a particularly interesting contrast: similar to firms that raise
post-IPO funds from VCs, these firms have high information asymmetry.
However, among these firms, the pre-IPO VCs appear less well positioned to
overcome this information asymmetry, as evidenced by the lack of significance
of pre-IPO industry experience. Finally, there is little evidence of bank financ-
ings being significantly related to firms’ information asymmetry. Although
17 We measure this variable at the VC firm level rather than the VC fund level because, among
post-IPO VC investments by the pre-IPO VC, only about half are by the same fund that funded the
firm prior to the IPO.
18 Results are robust to defining this variable as exits over years –7 to –1 as a percentage of the
number of unique firms in which it invested over years –10 to –8.

Figure 3. Variation across financing types in cyclicality. The sample consists of VC-backed
IPOs between 1995 and 2010, as described in Figure 1 and Table I. For each calendar year in
the sample, the figure plots the percentage of firms (among those that have gone public within
the past five years) that raise capital through one of the following forms of financing: post-IPO VC
rounds, PIPEs (without VC participation), SEOs, and syndicated loans. (Color figure can be viewed
at wileyonlinelibrary.com)
banks’ use of private information enables them to overcome information

asymmetry, they also have a comparative advantage in financing firms with
more collateralizable assets, which tend to have lower information asymmetry.
We also find support for our predictions regarding market-wide information
asymmetry. Specifically, SEOs are significantly positively related to past mar-
ket returns, whereas post-IPO VC financings are unrelated to market condi-
tions. The magnitude of the difference is compelling, as can be seen in Figure 3,
where we plot the percentage of recent IPO firms that raise each of the four
forms of financing during each calendar year. In contrast to the highly cyclical
pattern of SEOs, post-IPO VC financing shows substantially less variability.
We examine extensions to and the robustness of these findings along three
dimensions. First, a further prediction of the Agency Hypothesis is that the
tendency of low (high) performing funds to invest in public firms should be
highest among firms with high (low) volatility. Tests of this prediction are
challenging as volatility is observable only after the IPO, and some post-IPO
financings occur within the first month after the IPO. In Table IA.II in the
Internet Appendix, we define volatility as the standard deviation of daily
returns over the three months after the IPO for the IPO year (acknowledging
that it is not entirely observable ex ante), and over the three months prior
to the year-end for all other years. We include as additional independent
variables volatility, and volatility interacted with #Pre-IPO VC funds with low
success and #Pre-IPO VC funds with high success. We fail to find that either
of these interaction terms is significant, as the Agency Hypothesis would
suggest. In alternative specifications we omit cases in which the post-IPO VC
financing occurs within the first three months, and we similarly fail to find
any evidence consistent with the Agency Hypothesis.
Second, a disadvantage of including the market condition variables is that
we cannot include year fixed effects. Given the many factors that potentially
cause these financings to vary over time, we re-estimate regressions including
year fixed effects and excluding market conditions. As reported in Table IA.III
in the Internet Appendix, after including year fixed effects, the positive effects
of information asymmetry continue to be significant in explaining post-IPO
VC financing, whereas the agency proxies continue to be insignificant.
Third, we examine whether the findings above are sensitive to the type
of VC that provides funding. Specifically, we re-estimate the regressions in
column (1) of Table II, subsampling based on whether the VC also funded
the firm prior to the IPO and whether the VC is among the top 10. As
shown in Table IA.IV in the Internet Appendix, across all specifications we
continue to find support for the Information Asymmetry Hypothesis, but not
the Agency Hypothesis. Other differences provide added confidence regarding
our measures. For example, the information advantages of pre-IPO VCs are
significant in explaining funding by pre-IPO VCs, but not by other VCs. We
examine differences across VCs in more depth in the next section.
Panel B of Table II utilizes a multinomial logit specification to more directly
compare the propensities of firms to choose between alternative forms of
financing. Multinomial logits are appropriate when a firm faces multiple
choices, with the choices not rank-ordered in preference across the full
sample.19 The dependent variable is measured in terms of the first form of
financing that the firm raises after the IPO. Similar to the OLS models in
Panel A, the coefficients on firm characteristics provide strong support for the
Information Asymmetry Hypothesis.
Across both Panels A and B, the proxies for VCs’ agency conflicts are insignif-
icant at conventional levels. In contrast to the OLS results, in the multinomial
specifications, neither measure of VCs’ information advantage (average pre-
IPO VC industry experience and the pre-IPO director dummy) is significant at
conventional levels. However, one concern with these measures is that power is
likely low, as nearly half of post-IPO VC financings are by a VC that did not fund
the firm prior to the IPO. We examine VC characteristics in more depth in the
next subsection, by drilling down to the decision of which individual VCs choose
to invest. Overall, evidence in this subsection supports the Information Asym-
metry Hypothesis, with firms’ choices regarding post-IPO financing being well
19 Because the multinomial logit only allows for a single outcome, we define the outcome of each
firm to be the first source of post-IPO financing raised (across these four sources).
explained by the theoretical model of Myers and Majluf (1984). Newly public
firms are generally characterized by high information asymmetry, and firm-
years with the greatest sensitivity to these frictions rely on an intermediary
that can more credibly convey firm value. In contrast, among firm-years with
less sensitivity to such asymmetries, an SEO or syndicated loan is more viable.
B. VC Type
In this section, we focus on heterogeneity among potential VC investors,
both within the set of pre-IPO VCs and across the broader set of potential VC
investors. The financing decision is a matching problem: the firm demanding
the financing must be matched with the VC that can best overcome the frictions
that reduce the firm’s access to capital. The conjecture that the post-IPO VC
has a unique ability to overcome information asymmetries implies that the
characteristics of the post-IPO VC are of first-order importance.
Panel A of Table III reports results of a series of linear probability models,
in which the dependent variable is equal to 1 if a particular VC invests in
a given firm and 0 otherwise. In our first set of regressions, we consider the
propensity of any VC, defined across the full sample of VCs in existence at
the time, to fund any firm. Thus, the sample in column (1) includes all 1,755
VC-backed firms in our sample, interacted with each of the VCs that raises
at least one round of financing within the five years beginning on the firm’s
IPO date, yielding about 1.4 million observations. The sample in column (2)
is limited to the subset of firms that receive at least one round of post-IPO VC
financing, which reduces the sample to about 236,000 observations.
In this analysis, our measures of VCs’ information advantage include each
VC’s industry expertise and a dummy for whether the VC has a connected
director on the board.20 Our agency measures are similar to those used
previously, but now defined at the VC level. For each VC firm, we tabulate
the number of funds with low success and also the number of funds with
high success (defined as above as VCs in the lowest and highest quartiles,
respectively, based on prior performance). We also include a dummy that
is equal to 1 if the VC is young. Finally, we include a dummy that denotes
whether the VC is ranked among the top 10 VCs.
Looking at columns (1) and (2), one of the significant determinants of whether
a VC provides this post-IPO financing is whether it is ranked among the top
10. A broad body of prior literature finds that top VCs are skilled along many
dimensions, including, for example, selecting high-quality firms in which to
invest (Sorenson (2007)), monitoring and advising the firms in which they in-
vest (Sahlman (1990)), and timing the market (Gompers et al. (2008)). To the
extent that these investments reflect cases in which the VC has a compara-
tive advantage in overcoming information asymmetry, our finding that top 10
VCs are more likely to make these investments represents another dimension
20 These proxies are likely conservative, since VCs often work with the same outside directors
over time, and these other outside directors represent another potential source of information.
Table III
Which VCs Choose to Invest?
The sample consists of VC-backed IPO firms between 1995 and 2010, as described in Table I, matched with potential VC investors. In Panel A, column
(1) includes the full sample of 1,755 VC-backed IPO firms × each VC that raised at least one round of financing within the five years beginning at
the firm’s IPO date, meaning the total number of observations equals the product # VC-backed IPOs × # VCs. Column (2) restricts the sample to
those IPO firms that raised post-IPO VC financing. Columns (3) and (4) include the full set of 1,755 IPO firms but restrict attention to those VCs that
are ranked within the top 10 and outside the top 10, respectively (following the ranking of Nahata (2010)). Columns (5) and (6) also include the full
set of 1,755 IPO firms but restrict attention to those VCs that did and did not fund the firm prior to the IPO, respectively. Across all columns, the
dependent variable is equal to 1 if the VC funded the firm within the first five years post-IPO, and 0 otherwise. Linear probability models include
year and industry fixed effects, and standard errors are clustered by firm. Robust t-statistics clustered at the firm level are shown in parentheses. ***,
**, and * denote statistical significance at the 1%, 5%, and 10% levels, respectively. Variables are defined in Appendix C. Panel B provides a variance
decomposition of the six models shown in Panel A. Each entry in the table represents the Type III partial sum of squares for that independent variable
(or set of independent variables in the case of control variables and fixed effects), normalized by the sum across all effects. Within each column, the
sum of effects equals one.
All VCs Top 10 VCs Lower Ranked VCs Pre-IPO VCs Other VCs
Firms w/Post-IPO
All Firms VC Fin’g All Firms All Firms
(1) (2) (3) (4) (5) (6)
Panel A: Linear Probability Models, of Each Individual VC’s Propensity to Invest in Each Recent IPO Firm
VC info advantage proxies

VC Industry Experience 0.0551*** 0.2243*** 0.2127*** 0.0506*** 0.6923 0.0402***
(5.58) (5.29) (2.91) (5.55) (1.61) (5.52)
VC is a Director on Co.’s Board 5.1183*** 15.5242*** 3.3403 4.9075*** 5.5405***

(8.64) (6.01) (1.27) (8.03) (6.56)
VC agency proxies
#VC Funds with Low Success 0.0019 −0.0030 −0.0354 0.0003 −0.0816 0.0011
(0.50) (−0.15) (−1.05) (0.08) (−0.31) (0.43)
#VC Funds with High Success −0.0108** −0.0004 −0.1648*** −0.0071 −0.5824** 0.0035
(−1.96) (−0.01) (−2.73) (−1.38) (−2.52) (0.97)
VC Firm is Young 0.0025 0.0157 0.0220 0.0018 −0.5467 0.0030
(0.79) (0.86) (0.11) (0.66) (−0.78) (1.16)
VC Financed Firm Pre-IPO 2.9229*** 11.3799*** 1.8931* 2.8820***
(8.89) (8.39) (1.84) (8.55)
VC Ownership as of IPO 0.0030 0.8569*** 0.3577* 0.0027 0.0026
1549
(0.84) (5.82) (1.74) (0.82) (0.87)
(Continued)
Table III—Continued
All VCs Top 10 VCs Lower Ranked VCs Pre-IPO VCs Other VCs
1550
Firms w/Post-IPO
All Firms VC Fin’g All Firms All Firms
(1) (2) (3) (4) (5) (6)
Total # of VCs Involved Pre-IPO −0.2710**

(−2.46)
# of Rounds VC Involved In 0.2530
(0.90)
VC controls
Top 10 VCs 0.1373*** 0.8314*** 1.6667 0.1080***
(2.60) (2.78) (1.37) (2.86)
Additional controls Yes Yes Yes Yes Yes Yes
Adjusted R2 0.034 0.183 0.061 0.031 0.068 0.001
Observations 1,441,539 235,939 13,272 1,428,267 5,164 1,436,375
Panel B: Variance Decomposition
VC info advantage proxies

VC Industry Experience 1.19% 0.97% 4.85% 1.11% 0.88% 43.47%
VC is a Director on Co.’s Board 55.50% 22.64% 11.26% 53.81% 20.01%
VC agency proxies
#VC Funds with Low Success 0.00% 0.00% 0.30% 0.00% 0.03% 0.06%
#VC Funds with High Success 0.06% 0.00% 2.97% 0.03% 1.30% 0.43%
VC Firm is young 0.00% 0.00% 0.00% 0.00% 0.13% 0.22%
VC Financed Firm Pre-IPO 40.26% 32.76% 7.49% 42.48%
VC ownership as of IPO 0.42% 42.20% 39.61% 0.40% 0.16%
Total # of VCs Involved Pre-IPO 3.16%
# of Rounds VC Involved In 0.38%
VC controls
Top 10 VCs 0.29% 0.47% 0.70% 12.14%
Additional controls 0.68% 0.21% 11.35% 0.62% 22.05% 14.73%
Industry fixed effects 0.84% 0.27% 12.20% 0.79% 33.71% 16.45%
Year fixed effects 0.75% 0.47% 9.96% 0.77% 17.51% 12.50%
Observations 1,441,539 235,939 13,272 1,428,267 5,164 1,436,375
along which they create value. In subsequent columns we examine the extent to
which the investments of high- versus low-ranked VCs are driven by different
criteria (columns (3) and (4)). In addition, we separately examine subsamples of
VCs that did versus did not fund the firm prior to the IPO (columns (5) and (6)).
Across all specifications, Table III again provides support for the Infor-
mation Asymmetry Hypothesis. Looking first at columns (1) and (2), across
the universe of VCs, VCs with greater industry experience and VCs with
a connected director on the board are significantly more likely to provide
post-IPO funding.21 These relations are significant at the 1% level for both
the full sample of VC-backed IPO firms and for the subset of firms that
ultimately receive post-IPO VC funding. Subsamples in columns (3) to (6)
similarly support the importance of VCs’ information advantage in motivating
these investments. In contrast, across all six specifications, none of the
agency-related measures is significantly related in the predicted direction to
a VC’s propensity to fund a firm after the IPO.
When we limit the sample to VCs that funded the firm prior to the IPO
(column (5)), we also include the number of pre-IPO rounds in which the VC
was involved and the total number of pre-IPO VCs that fund the firm. We find
that a pre-IPO VC is more likely to provide post-IPO funding if it was one of
a smaller number of VC investors before the firm went public, consistent with
the probability of providing funding being higher if there are fewer candidate
investors with equivalent levels of information advantage.22
Panel B of Table III provides a variance decomposition analysis, showing
the percentage of total explanatory power attributed to each factor. Several
observations are worth highlighting. First, across the full sample, over half of
the variation is due to whether the VC has at least one person serving on the
company’s board. Second, the information advantage that comes from serving
on a company’s board is particularly relevant among lower ranked VCs: among
these VCs this factor explains 53.8% of the total variation, compared to only
11.3% among top 10 VCs. This finding is consistent with lower quality VCs
having lower general skill levels and thus relying more on inside information.
Third, among pre-IPO VCs, whether the VC has a director on the company’s
board is substantially more important than industry expertise, explaining
20.0% versus 0.9% of the total variation. However, among non-pre-IPO VCs,
where the VC does not by definition have a director on the company’s board, in-
dustry expertise becomes much more important, explaining 43.5% of the total
variation. Finally, the other most important factor across many subsamples is
previous VC investment, measured as either an indicator for whether the VC
financed the firm pre-IPO or VC ownership as of the IPO. Across three of
21 VCs that serve on the board may also be less sensitive to moral hazard risks because of a
longer term horizon.

22 Table IA.V in the Internet Appendix shows that the results in columns (3) to (6) are similar
if the sample of firms is restricted to those that receive post-IPO financing. Although beyond the
scope of this paper to examine directly, the findings of Hochberg, Ljunqvist, and Lu (2007) suggest
that network effects may also influence VCs’ post-IPO investments, particularly for VCs that do
not have a prior relationship with the firm.
Figure 4. VC fund age at the time of firm financing rounds. The sample consists of VC-
backed IPOs between 1995 and 2010, as described in Figure 1 and Table I. For each VC round
investment in these firms, we determine the VC’s fund age at the time of investment. The solid line
plots median VC fund age at the time of investment, across VCs investing both pre- and- post IPO.
The dashed line plots median VC fund age at the time of investment across VCs investing only
pre-IPO (as depicted by years –5 through –1 in the figure) or only post-IPO (as depicted by years +1
through +5 in the figure). Year –1 (year +1) is defined as the 12 months preceding (following) the
IPO. Other years are defined analogously. Thus, among VCs investing pre- and post-IPO, median
fund age was four years among the investments that occurred one year prior to the IPO and six
years among the investments that occurred one year after the IPO. Among VCs that invested only
prior to the IPO, median fund age was a similar four years among the investments that occurred
one year prior to the IPO. Among VCs that invested only after the IPO, median fund age was four
years. (Color figure can be viewed at wileyonlinelibrary.com)
the four relevant subsamples, this variable explains 30% to 40% of the total
variation.
We also consider the possibility that our agency proxies have low power be-
cause only older funds can determine whether performance will be sufficiently
low to incentivize negative NPV gambles, or sufficiently high to incentivize
managers to lock in gains. This scenario suggests that post-IPO investments
would be concentrated within older VC funds. Figure 4 shows the median fund
age, at the time of both pre-IPO and post-IPO investments. The solid line, which
represents the subsample of VCs that funded the firm both prior to and after the
IPO, shows that the typical VC fund’s age increases by approximately one year
with every additional year after the IPO, which is what one would expect if there
were no bias toward older VCs providing these investments. The dashed line
depicts VCs that invested only pre-IPO (points to the left of the IPO year) and
VCs that invested only post-IPO (points to the right of the IPO year). We find no
difference in median VC fund age between these two groups. Moreover, most of
the rounds that we observe are made in the first few years after the IPO, when
the VC funds’ age is away from the typical double-digit lifetime of VC funds.
In sum, while approximately 15% of VC-backed IPO firms receive VC
financing within the first five years after the IPO, the VCs that provide
such financing are far from random: post-IPO VC financing is significantly
more likely to be provided by a VC that has an especially strong information
advantage with respect to the given firm. This evidence supports the view that
VCs play the role of informed investors that can overcome the adverse selection
problems highlighted by Akerlof (1970) and Myers and Majluf (1984). Results
to this point provide little evidence that agency-related factors contribute to
VCs’ investments in these post-IPO firms.
III. Returns to Investors that Provide Financing

In this section, we examine the Information Asymmetry Hypothesis and
the Agency Hypothesis from a different perspective, focusing on returns to
investors. The Agency Hypothesis is based on the fundamental idea that
nonlinearities in VCs’ compensation contracts lead them to prioritize risk over
the NPV of the underlying investments. In contrast, the Information Asym-
metry Hypothesis is based on the premise that VCs’ information advantage
gives them a unique ability to identify positive NPV investments, and to the
extent that VCs can earn a premium on this unique ability, they should earn
positive abnormal returns on these investments.
One challenge in testing these competing predictions is that it requires detail
on the precise terms at which VCs invest. As noted previously, post-IPO VC fi-
nancings are typically structured as PIPEs, and as shown in Panel B of Table I
VCs invest at an average 13% discount to the market price and 48% of VCs’
investments include warrants. Stock returns do not fully capture the returns
to investors in the PIPE transactions. We thus rely on the precise deal terms
for each funding episode, as obtained from Placement Tracker. These data are
available for 240 of the 268 sample firms with post-IPO VC financing. We fur-
ther limit the sample to cases in which the VC purchases common stock, due to
the infeasibility of measuring returns to convertible stock investments (as it is
frequently impossible to determine the point at which convertibility occurs). We
estimate returns to each VC’s investment net of the value-weighted return on
the size-matched decile index (using Fama-French market capitalization decile
breakpoints).23 Returns are calculated from the price at which the investor pur-
chased shares (which on average represents a 13% discount relative to the mar-
ket price, as shown in Panel B of Table I) through the market price at the end
of 3, 6, 9, and 12 months, respectively. We add the valuation of warrants into
23We thank Ken French for making these breakpoints publicly available: https://mba.tuck.
dartmouth.edu/pages/faculty/ken.french/data_library.html
Table IV
Buy-and-Hold Abnormal Returns to the Investor that Provides
Financing
The sample consists of VC-backed IPO firms between 1995 and 2010, as described in Table I. Panel
A consists of those firms that raised post-IPO VC financing, conditional on the financing being
structured as a PIPE and included in PlacementTracker. Panels B and C separate the Panel A
sample into deals backed by top 10 VCs and lower ranked VCs, respectively. Panel D consists of
post-IPO PIPEs in which no VC participated in the funding syndicate, and Panel E further requires
hedge fund participation, with data again coming from PlacementTracker. In each panel returns
are calculated from the price at which the investor purchased shares through the subsequent 3-,
6-, 9-, and 12-month periods. Buy-and-hold abnormal returns are calculated as the raw return
net of the value-weighted return on firms in the size-matched decile index. In calculating investor
returns, we restrict the sample to common stock financings, we account for the discount relative to
market price at which the investor provided financing, and we account for the number of warrants
purchased and the value of the warrants in each relevant time period (following Lim, Schwert, and
Weisbach (2018)). In all panels, we regress returns over the relevant interval on a constant term.
Robust t-statistics, clustered on the deal closing month, are in parentheses. ***, **, and * denote
statistical significance at the 1%, 5%, and 10% levels, respectively.
3 Months 6 Months 9 Months 12 Months
Panel A: Post-IPO VC Financings BHARs
Constant 30.44*** 37.31*** 39.28*** 31.42***

(6.18) (2.87) (3.06) (2.88)
Observations 190 188 185 180
Panel B: Post-IPO VC Financings BHARs, where VC is Top 10
Constant 42.44*** 68.87*** 70.55** 60.76**

(4.37) (3.48) (2.57) (2.18)
Panel C: Post-IPO VC Financings BHARs, where VC is Not Top 10
Constant 26.60*** 27.08* 28.93** 21.64**

(4.60) (1.73) (2.05) (2.00)
Panel D: PIPE BHARs
Constant 27.27*** 21.22*** 13.08* 9.09

(3.72) (3.03) (1.97) (1.16)
Panel E: PIPE BHARs with Hedge Fund Involvement
Constant 20.36*** 16.06** 12.25 3.72

(3.40) (2.13) (1.62) (0.48)
the value of the shares at the end of each interval (based on the Black-Scholes
warrant pricing formula, following Lim, Schwert, and Weisbach (2018)).
Table IV reports the results. We estimate regressions of abnormal returns
over each interval on a constant, where we cluster standard errors on the month
in which the offering closed to allow for the possibility that investor returns
for deals that close in the same month are correlated with each other. Looking
first at Panel A, which includes all post-IPO financings (with available data
to calculate returns), results show that over the first three months following
the investment, VCs earn 30.4 percentage points. This abnormal performance
does not reverse over time, as reflected by the fact that abnormal buy-and-hold
returns over the longer 12-month period are a similar 31.4 percentage points.24
Turning to Panels B and C, we find that both top 10 VCs and lower ranked
VCs earn significantly positive abnormal returns. However, the top 10 VCs’
returns are higher, an average of 60.8 percentage points over the first 12
months, compared to 21.6 percentage points for lower ranked VCs. We find no
evidence that top 10 VCs negotiate larger discounts, suggesting that the higher
performance reflects either selection or monitoring effects. Along these dimen-
sions, our findings are consistent with prior evidence for pre-IPO investments
(see, e.g., Sorenson (2007), Nahata (2008), and Krishnan et al. (2011)).
The significantly positive abnormal returns of VCs in PIPEs contrast with
general PIPEs in which hedge funds are the typical investor. As shown in
Panel D, among PIPEs with no VC participation, we observe similar positive
abnormal performance at the short three-month interval, but it dissipates
over longer intervals. Panel E shows similar patterns over the subset of cases
in which we can confirm the presence of a hedge fund investor. Over the
12-month interval, hedge fund investors earn 3.7 percentage points, which
is substantially lower than the 31.4 percentage points earned by VCs. This
difference is consistent with VCs having a larger information advantage than
hedge funds, for example, through their prior relations with the firm and/or
their more extensive experience with young firms.
The higher returns of VCs compared to non-VC PIPE investors could be
driven by VCs’ ability to invest in firms with more valuable investment
opportunities and a tendency to focus on longer term value creation, or it
could be driven by an ability to negotiate better terms at the time of the deal.
Table V examines this issue by comparing three aspects of deals, across VC
financings versus PIPEs. First, we examine the discount at which the investor
provides financing relative to the market price, to capture differences in deal
terms. Second, we examine proceeds raised in the round as a fraction of
market capitalization and whether the investor obtains Board representation
commensurate with the financing, to capture the extent of the investor’s com-
mitment to the company. The sample consists of the subsample of VC-backed
IPO firms that raise VC financing or (non-VC) PIPEs within the first five years
after the IPO, and the independent variables of interest equal a dummy equal
to 1 if the post-IPO financing was from a VC and a dummy equal to 1 if the
post-IPO financing syndicate included a hedge fund. We include as controls
24 A contemporaneous paper by Ozmel, Trombley, and Yavuz (2019) finds that the limited part-
ners of VC firms benefit from an information advantage, which influences post-IPO investments
made through their own accounts.
Table V
A Comparison of Private Placements in Public Equity with versus
without VC Participation
The sample consists of firms that raised financing through a PIPE, including both financings
in which a VC was part of the funding syndicate (referred to as post-IPO VC financings) and
financings in which no VC was part of the funding syndicate, within the first five years after the
IPO. The dependent variable in column (1) is the discount, calculated as the percentage change
between the price at which the investors purchased shares and the market price on the close of
trading two days prior to the announcement of the financing. The dependent variable in column
(2) is proceeds raised in the financing scaled by firm market capitalization, calculated as shares
outstanding times the market price on the close of trading two days prior to the announcement of
the financing. The dependent variable in column (3) is board representation, which we define as a
dummy equal to 1 if any investor in the funding syndicate obtained a board seat with the financing,
and 0 otherwise. All regressions include industry and year fixed effects, as well as all VC-related
measures and other control variables used in Table II (not tabulated). Robust t-statistics clustered
at the firm level are in parentheses. ***, **, and * denote statistical significance at the 1%, 5%,
and 10% levels, respectively.
Proceeds Raised/ Board

Discount MktCap Representation
(1) (2) (3)
VC Participation
Post-IPO VC Financing Dummy 0.0099 0.1682*** 0.1281***
(0.41) (2.89) (3.91)
Hedge fund participation
Hedge Fund Financing Dummy 0.0761*** −0.0104 −0.0517
(3.26) (−0.18) (−1.63)
Firm information asymmetry proxies
Bid-Ask Decile 0.0135** 0.0501*** 0.0175**
(2.24) (3.07) (2.32)
Negative CFO 0.0085 −0.2574** −0.0696
(0.20) (−2.05) (−1.27)
R&D-to-Assets −0.1521** 0.2373 −0.0316
(−2.46) (1.33) (−0.42)
Adjusted R2 0.201 0.023 0.154
Observations 331 425 436
the proxies for firm information asymmetry. In addition, we also include the
VC-related measures and other control variables previously used in Table II.
The results provide no evidence that VCs negotiate greater discounts than
typical PIPE investors. Rather, differences are more consistent with the VCs
being focused on long-term value creation. VCs invest significantly more cap-
ital, and they invest not only money but also their time in the form of board
seats. Board seats enable VCs to better share their expertise with the company,
for example with respect to industry-specific knowledge and optimal corporate
governance structures (see, e.g., Celikyurt, Sevilir, and Shivdasani (2012), Kr-
ishnan et al. (2011)). In contrast, the hedge fund dummy indicates that these
investors do not have a similar propensity to invest large amounts of capital or
take board seats. Moreover, hedge funds are associated with significantly larger
discounts. Although we cannot observe the date when these investors divest
shares, in aggregate our findings on both deal terms and abnormal returns are
consistent with VCs taking a longer term view.25 These findings build on the
findings of Krishnamurthy et al. (2005) and Brophy, Oimet, and Sialm (2009)
that the identity of the PIPE investor, in particular, whether it has a strategic
relationship with the firm, is significantly related to investor returns. In the
case of newly public firms, the most strategic investor is a VC, and in many cases
it is the VC that developed a relationship with the firm while it was still private.
In sum, the results are consistent with firms reverting to VC financing after
the IPO when information asymmetry is high and the VC has a comparative
advantage in overcoming this asymmetry. Table IV shows that VCs earn a posi-
tive return on this information advantage. Interestingly, the finding in Table V
that VCs make a long-term commitment to the company suggests that the
primary motivation for these investments is not increased liquidity after the
IPO (which potentially relates to a decrease in VCs’ cost of capital). In fact, our
findings suggest that higher liquidity is less important for these VC investors
compared to other PIPE investors. VCs’ shares are rarely registered, and
they cannot sell shares until an average of 118 days after the IPO. Moreover,
compared to PIPEs, VCs tend to invest greater amounts and are more likely to
obtain board representation, again suggestive of a longer term commitment to
the firm. The evidence that liquidity is not a driving factor also provides added
evidence against the Agency Hypothesis, which predicts that VCs’ motivation
for investing in public firms is related to the possibility of rapidly divesting to
realize any gains.
IV. Market Performance around Post-IPO VC Investments

To the extent that information asymmetry-related factors motivate post-IPO
VC investments, as indicated by results in Tables II to V, we expect market
returns around the time of these investments to be significantly positive. First,
if VCs can identify firms with more valuable investment opportunities, then
these investments should represent a positive signal regarding firm value.
Second, if these investments enable the firm to take positive NPV projects that
it otherwise would not be able to fund, then these infusions of capital should
increase firm value and the value of the shares held by non-VC investors. We
test these ideas by examining cumulative abnormal returns (CARs) in the
days immediately surrounding post-IPO VC investments as well as longer run
returns over the subsequent one, three, and five years.
Table VI reports results on firm abnormal returns in the days surrounding
post-IPO VC investments. One challenge in measuring abnormal returns
relates to the fact that we do not know the exact date on which the VC funding
was announced. Although in many cases the date reported in VentureXpert
matches the date extracted from form 8-K filings, in other cases the dates
25 VCs’ holdings are not reported in 13F holdings, and they are only reported on proxy statements
if they are a registered insider, defined as being on the Board, having an executive position, or
owning 5% or more of the firm.
1558
Table VI
Returns to External Investors: CARs around Post-IPO VC Financings
The sample consists of VC-backed IPOs, as described in Table I, that received post-IPO VC financing (during the day 8 to year 5 period following the
IPO). Cumulative abnormal returns (CARs) are defined as the raw firm return over the designated window in the days surrounding the post-IPO VC
investment, minus the return on the matched size decile over the same period. The left-hand side of the table reports CARs across financings by all VCs,
and the right-hand side reports CARs by top 10 and nontop 10 VCs. The first row reports CARs for the full sample of firms. Subsequent rows present
CARs conditional on: whether the VC who is providing the post-IPO financing has a director on the board prior to the financing (VCPost-IPO Financing ),
whether the VCPost-IPO Financing owns shares prior to the financing, on whether the VCPost-IPO Financing invested in the firm prior to its IPO, the level of
market returns, and the level of market volatility. Bad (good) market returns include cases in which the three-month value-weighted market returns
over the prior three months, ending on day –3 relative to the post-IPO VC investment, are negative (positive). Volatile (stable) market includes cases
in which the standard deviations of daily returns on the value-weighted market index over the same period are greater (less) than the sample median
of 1.089%. Robust t-statistics are in parentheses. ***, **, and * denote statistical significance at the 1%, 5%, and 10% levels, respectively.
Post-IPO Financings by Top Post-IPO Financings by

Post-IPO Financings by All VCs 10 VCs Nontop 10 VCs
Difference
between
CAR (t-Test) Observations Subsamples CAR (t-Test) Observations CAR (t-Test) Observations
[−2, +2] [−2, +10] [−2, +10] [−2, +10] [−2, +10]
Full sample, 1997 to 2014 4.83% 7.35% 268 5.76% 48 7.69% 220
(4.00) (4.05) (1.58) (3.73)
VCPost-IPO Financing has 5.41% 14.09% 115 10.55*** 11.39% 26 14.88% 89

director on board (2.71) (4.26) (2.65) (3.63)
(Continued)
Table VI—Continued
Post-IPO Financings by Top Post-IPO Financings by

Post-IPO Financings by All VCs 10 VCs Nontop 10 VCs
Difference
between
CAR (t-Test) Observations Subsamples CAR (t-Test) Observations CAR (t-Test) Observations
[−2, +2] [−2, +10] [−2, +10] [−2, +10] [−2, +10]
VCPost-IPO Financing has 5.48% 3.54% 123 1.13% 17 3.93% 106

no director on board (3.19) (1.61) (0.16) (1.7)
VCPost-IPO Financing owns 5.30% 15.02% 108 11.68*** 8.55% 25 16.96% 83

shares (2.50) (4.20) (2.02) (3.80)
VCPost-IPO Financing does 5.57% 3.34% 130 5.64% 18 2.97% 112

not own shares (3.40) (1.67) (0.80) (1.46)
VCPost-IPO Financing 4.28% 9.2% 177 5.47 5.98 37 10.06 140

invested prior to IPO (2.88) (3.7) (1.44) (3.41)
VCPost-IPO Financing did 5.89% 3.73% 91 5.02 11 3.56 80

not invest prior to IPO (2.85) (1.68) (0.64) (1.54)
Bad market returns 5.89% 10.89% 98 5.59 0.82% 14 12.57% 84

(2.27) (2.9) (0.14) (2.95)
Good market returns 4.22% 5.3% 170 7.79% 34 4.68% 136
(3.59) (2.86) (1.72) (2.31)
Volatile market 6.02% 12.21% 135 9.8*** 8.36% 22 12.96% 113

(3.04) (3.86) (1.25) (3.64)
Stable market 3.62% 2.41% 133 3.55% 26 2.13% 107
(2.65) (1.47) (0.97) (1.16)
1559
differ by several days. Because we have the 8-K date for only a subset of
cases, we use the VentureXpert date as day 0 for all cases, and we place more
weight on the longer window CARs, for example, over the (–2, +10) window
rather than the (–2, +2) window. Nevertheless, our conclusions hold across
all intervals. CARs are measured as the raw firm return over the designated
window minus the return on the matched size quartile over the same period.
The first row of Table VI reports CARs for the complete sample of VC-backed
IPOs over the 1995 to 2010 period, for which fundings potentially occur over
the 1995 to 2015 period. Looking at the (–2, +10) event window, we see that
abnormal announcement returns equal 7.35%. This positive valuation impact
is likely a combination of the signaling effect and the increase in financial
flexibility, which increases companies’ abilities to realize their growth oppor-
tunities. Figure IA.4 in the Internet Appendix depicts these CARs graphically,
using three alternative benchmarks: market-adjusted, size-adjusted, and
industry-adjusted. The results are qualitatively similar across all three.
The finding that VC investments are perceived by the market to be positive
news is consistent with the conclusions of Dai (2007) for a sample of mature
firms. In subsequent rows of Table IV, we examine the sources of gains to
newly public firms. Beyond predicting positive average abnormal returns, the
Information Asymmetry Hypothesis predicts that returns should be higher
among those cases in which VCs’ information advantage is greater. At a
minimum, the positive signaling effect should be greater. In addition, the VC
financing potentially enables these firms to undertake additional positive NPV
investments, for example, if the firms lacked sufficient capital and funding
from other sources was prohibitively costly.
The results strongly support the conjecture that financings by VCs with a
greater information advantage are associated with higher abnormal returns.
Looking at rows (2) and (3), in cases in which the funding VC has a director
on the board average abnormal returns over the (–2, +10) interval are 14.1%,
compared to 3.5% among cases in which none of the funding VCs has a
director on the board. Rows (4) and (5) show a similar magnitude difference
between firms in which a funding VC owns shares in the company immediately
prior to the investment versus firms in which no funding VC owns shares.
Both differences are significant at the 1% level. Rows (6) and (7) show that
abnormal returns are similarly higher among the cases in which the post-IPO
VC investor also backed the firm prior to the IPO. However, the magnitude
of this difference is smaller: 9.2% versus 3.7%. This is consistent with some
of the pre-IPO VCs divesting shares and thus having more stale information
compared to the VCs that own shares immediately prior to the post-IPO
investment. We also find that returns are higher among cases in which the VC
has greater industry experience, but the difference using this noisier measure
of information advantage is not significant at conventional levels.
The lower part of Table VI shows that the abnormal announcement returns
are also higher when market-wide information asymmetry is likely to be
higher, as measured by both lower market returns and more volatile market
returns. Financings during more volatile markets are characterized by
abnormal returns of 12.2%, versus 2.4% during more stable markets, a

difference that is significant at the 1% level. This result is consistent with it
generally being more difficult to raise capital in such markets, and thus with
the ability to successfully raise funds from VCs being especially valuable.
Finally, the right-hand columns of Table VI show that these patterns hold
across post-IPO VC financings by both top 10 VCs and by lower ranked VCs.
Within each of these groups, abnormal announcement returns are higher
among the subsamples characterized by higher information asymmetry.
Within most subsamples, abnormal returns are also higher among the lower
ranked VCs. This is consistent with the market being more surprised when
these types of firms (i.e., firms backed by lower quality VCs) raise financing
and with the positive effect of VC financing being stronger.
Table VII indicates that these positive value increases are permanent. We
form a rolling portfolio, consisting of all firms that received post-IPO VC financ-
ing within the past 12 months. Each calendar month we calculate net returns,
equal to average returns across all firms in the portfolio minus the risk-free
rate. We regress the portfolio returns on five factors, following Fama and
French (2015), where the factors relate to the overall market, size, value, in-
vestment, and profitability. The constant, commonly referred to as the portfolio
alpha, represents a measure of abnormal performance. Analogous regressions
are estimated for the 36 and 60-month intervals. As shown in the three
left-hand columns of Table VII, we find no evidence that these firms sig-
nificantly underperform the market after receiving post-IPO VC financing.
The alpha is insignificant and positive in all specifications. Regressions on
subsamples of investments by top 10 VCs versus lower ranked VCs similarly
show no evidence of underperformance within either group.
These results contrast with Hertzel et al.’s (2002) finding of significantly neg-
ative long-run abnormal returns following PIPEs. The middle three columns of
Table VII evaluate the abnormal returns subsequent to PIPEs, within our sam-
ple of VC-backed IPO firms. In contrast to the positive alphas in the post-IPO
VC investment regressions, the alphas in the PIPE regressions are negative
over all three time intervals, albeit not significant at conventional levels.
To better compare these two forms of investment, in the three right-hand
columns we form a portfolio that is long in companies that received post-IPO
VC financing and short those that received funding through a PIPE, where
both samples are restricted to newly public companies (defined as companies
that went public within the past five years). The alpha of this long-short
portfolio is significantly positive at the 1% level, at both the 36-month and
60-month intervals. The results are also robust to using a four-factor model,
consisting of the three Fama-French factors and the momentum factor, follow-
ing Fama and French (1993) and Carhart (1997). The significant differences
in returns following post-IPO VC financing versus PIPEs are consistent with
VCs representing a value-increasing source of capital for these newly public
firms, with VCs having a unique ability to identify the firms with the most
valuable investment opportunities. The results are also consistent with Wruck
(1989), who shows that investments that increase ownership concentration
1562
Table VII
Returns to External Investors over Long Run
The sample consists of VC-backed IPOs over the 1995 to 2010 period, as described in Table I. The three left-hand columns focus on firms that receive
post-IPO VC financing (during the day 8 to year 5 period following the IPO), the three middle columns focus on firms that raise capital through PIPEs
during the first five years after the IPO, and the three right-hand columns are based on a portfolio that is long the former and short the latter. Each
column reports calendar time portfolio regressions, where a firm enters the portfolio in the month following the post-IPO financing. The firm remains
in the portfolio for the first 12, 36, or 60 months following the post-IPO financing. Monthly common stock returns on this portfolio, net of the risk-free
rate, are regressed on the five Fama-French (2015) factors. Robust t-statistics are in parentheses. ***, **, and * denote statistical significance at the
1%, 5%, and 10% levels, respectively.
Returns Following Post-IPO VC Inv’ts Returns Following Post-IPO PIPEs Long-Short Portfolio
12 Months 36 Months 60 Months 12 Months 36 Months 60 Months 12 Months 36 Months 60 Months
Constant 0.480 0.812 0.754 −0.550 −0.715 −0.372 1.274 1.691*** 1.286***
(0.62) (1.42) (1.44) (−0.68) (−1.15) (−0.77) (1.41) (2.88) (2.87)
Market-Rf 0.961*** 1.062*** 1.081*** 1.177*** 1.147*** 1.119*** −0.162 −0.096 −0.049
(5.50) (6.09) (6.42) (4.54) (7.63) (8.75) (−0.69) (−0.69) (−0.40)
SMB 1.037*** 1.048*** 1.094*** 1.436*** 1.189*** 1.067*** −0.359 −0.130 0.038
(4.78) (6.37) (7.22) (5.96) (5.77) (6.04) (−1.30) (−0.65) (0.21)
HML −0.367 −0.481* −0.593** −0.522 −0.764*** −0.772*** 0.025 0.338 0.234
(−1.04) (−1.68) (−2.10) (−1.09) (−2.71) (−3.39) (0.06) (1.27) (1.11)
RMW −1.759*** −1.340*** −1.296*** −0.982** −1.063*** −0.994*** −0.666* −0.283 −0.308
(−5.30) (−5.40) (−5.35) (−2.32) (−3.51) (−3.63) (−1.72) (−1.08) (−1.29)
CMA −0.007 −0.222 0.058 −0.089 0.293 0.149 0.081 −0.649** −0.222
(−0.01) (−0.51) (0.15) (−0.21) (0.80) (0.49) (0.14) (−1.98) (−0.81)
Adjusted R2 0.537 0.609 0.634 0.454 0.584 0.673 −0.009 0.020 0.024
Observations 226 226 226 198 219 219 198 219 219
are more likely to lead to increases in firm value if the investor is expected to
have a long-term relationship with the firm.
We note that the positive abnormal returns on this long-short portfolio
indicate that the market does not fully price the information content of
the investor’s identity. Both VC financings (post-IPO) and other PIPEs are
structured similarly, as PIPEs. The slow incorporation of investor identity into
the price is consistent with the market failing to recognize VCs’ comparative
advantage in overcoming information asymmetry within these types of firms
and the associated benefits for the firms.
We find no evidence that firms receiving post-IPO VC investments under-
performed prior to these investments. As shown in Table IA.VI in the Internet
Appendix, we estimate similar factor regressions focusing on returns over the
12, 36, and 60 months prior to the VC’s investment. Companies that underper-
form after the IPO are more likely at risk of bankruptcy or delisting for poor
performance without additional capital infusions. Among VCs that invested
in the firm prior to the IPO, the risk of losing their entire investment should
increase incentives to engage in lottery-type gambles. Although theoretically
a plausible scenario, we find no evidence that firms underperform over the
months and years leading up to these VC investments. Alphas on portfolios
of firms with post-IPO VC financing are all insignificant at conventional
levels.
In sum, multiple returns-based tests provide no support for the Agency
Hypothesis. The positive abnormal returns around the announcements, in
conjunction with no evidence of long-term underperformance, are consistent
with VCs having a unique ability to overcome information asymmetry. In
the next section, we attempt to discern the extent to which these positive
returns reflect a causal effect of post-IPO investments on firm value. In other
words, to what extent does VC financing enable firms to undertake positive
NPV projects that they otherwise would be unable to do? Or alternatively,
are VCs simply better able than other market participants to identify positive
NPV opportunities, in which case the firm would have performed equally well
without the VC’s investment?
V. Do Firms Benefit from Post-IPO VC Financing?

If post-IPO VC financing helps firms overcome information asymmetry more
than any other type of capital provider, then firms with greater access to such
financing (if the state of the world in which they demand such financing is
realized) should outperform those with a lower probability of obtaining such
financing. To test this prediction, we take advantage of the fact that VCs
vary widely in their propensity to fund companies after the IPO. As shown in
Appendix A, New Enterprise Associates and Sprout Group both invest in over
10% of their deals both prior to and following the IPO. In contrast, Sequoia
Capital and Bessemer Venture Partners have analogous rates of 2% or less.
To avoid a look-ahead bias, for each IPO firm in our sample we identify the
VCs that provided financing prior to the IPO, and we calculate the number
of post-IPO financings of these VCs in the period beginning 10 years prior to

the IPO and ending one month prior to this firm’s IPO. The total number of
post-IPO rounds performed by the VCs involved with a given firm before its
IPO represents our measure of VC’s post-IPO funding experience. All compa-
nies with an above-median value are placed in the high-likelihood post-IPO
funding portfolio, and all other companies are placed in the low-likelihood
portfolio.
Table VIII presents results of calendar-time portfolio regressions, similar to
those reported in Table VII. Specifically, we estimate regressions based on: a
portfolio with a long position in the high-likelihood of post-IPO funding port-
folio, a portfolio with a long position in the low-likelihood of post-IPO funding
portfolio, and a portfolio that is long the first sample and short the second.
Portfolios are formed over three intervals: 12, 36, and 60 months after the
IPO.
The results provide strong evidence that post-IPO VC financing is beneficial
to companies. Looking first at the three left-hand columns of Table VIII, among
companies backed by VCs with a high propensity to fund companies after the
IPO, the alpha is significantly positive in all three specifications. In contrast,
the three middle columns highlight the lower performance of firms backed by
VCs with a lower tendency to provide post-IPO funding. Among these firms,
the alphas are close to zero and none is significant. Finally, as shown in the
three right-hand columns, the long-short portfolio is significantly positive at all
intervals. In economic terms, the benefits of being funded by a VC with a higher
propensity to support companies after the IPO equal 1.3% per month over the
first 12 months after the IPO. The magnitude of these benefits wanes over time
to 0.7% per month, as VCs’ information advantage decreases and the likelihood
of VC funding diminishes (as shown in Figure IA.2 in the Internet Appendix).
Panel B of Table VIII shows that the advantage of being funded by a VC with
a greater propensity to fund companies after the IPO is concentrated among
firms backed by lower ranked VCs. Because these firms lack the certification
of a higher ranked intermediary, they likely suffer from higher information
asymmetry and are more sensitive to Myers and Majluf (1984) type frictions
that make it difficult to raise capital. Hence, the higher probability of being
able to secure post-IPO funding, that is, through the pre-IPO VC, is particu-
larly valuable. The fact that these effects show up in long-run returns suggests
that the market underestimates the probability of this financing.
In a similar vein, Table IX examines whether companies backed by high
post-IPO funding VCs are less likely to delist, and in particular, whether they
are less likely to delist for poor performance. Column (1) reports results of a
logistic model in which the dependent variable is a dummy equal to 1 if the
firm delists and 0 otherwise. Columns (2) and (3) are similar, but they focus
on whether the delisting is caused by an acquisition or poor performance,
respectively. The independent variable of interest, Pre-IPO VCs’ funding
experience in public firms, measures the total number of post-IPO rounds (in
other firms) by the VCs that funded the firm before its IPO. Consistent with
expectations, we find that firms are significantly less likely to delist for poor
Table VIII
Performance of IPO Firms that were Funded (prior to IPO) by VCs with above- versus below-Median
Tendency to Provide Post-IPO Financing
The sample consists of VC-backed IPOs over the 1995 to 2010 period, as described in Table I. Panel A shows calendar time portfolio regressions, where
a firm enters the portfolio in the month following the IPO. The firm remains in the portfolio for the first 12, 36, or 60 months following the IPO. A
portfolio is formed that is long in firms that were backed prior to the IPO by VCs that, over the prior 10 years, funded an above-median percentage of
companies following the IPO (three left-hand columns). We analogously form a portfolio of firms that were backed prior to the IPO by VCs that funded
a below-median percentage of companies following the IPO (middle three columns), and a long-short portfolio (three right-hand columns). Monthly
returns on this portfolio, net of the risk-free rate, are regressed on the five Fama-French (2015) factors. ***, **, and * denote statistical significance
at the 1%, 5%, and 10% levels, respectively. Robust t-statistics are in parentheses. Panel B reports regressions similar to those shown in the three
right-hand columns of Panel A, with the exception that the sample is restricted to firms backed prior to the IPO by VCs ranked within the top 10 and
outside of the top 10, respectively (following the ranking of Nahata (2008)).
Panel A: VCs of All Quality Levels
IPO by VCs with above-Median Post-IPO IPO by VCs with below-Median Post-IPO
Funding Experience Funding Experience Long-Short Portfolio
12 Months 36 Months 60 Months 12 Months 36 Months 60 Months 12 Months 36 Months 60 Months
Constant 1.277** 1.121*** 1.053*** −0.006 0.425 0.324 1.283** 0.696*** 0.729***
(2.32) (3.22) (3.51) (−0.01) (1.30) (1.16) (2.23) (2.77) (3.83)
Market-Rf 1.107*** 1.193*** 1.204*** 0.932*** 1.094*** 1.172*** 0.175* 0.099 0.032
(8.98) (13.05) (15.96) (8.43) (12.47) (15.58) (1.66) (1.60) (0.72)
SMB 0.773*** 0.823*** 0.853*** 0.888*** 0.875*** 0.919*** −0.115 −0.052 −0.066
(3.98) (6.95) (8.14) (5.25) (7.71) (8.87) (−0.84) (−0.88) (−1.22)
HML −0.475* −0.521*** −0.544*** −0.742*** −0.315*** −0.254** 0.268 −0.206** −0.290***
(−1.74) (−3.76) (−4.23) (−3.38) (−2.77) (−2.34) (0.74) (−2.07) (−3.09)
RMW −0.676** −1.018*** −1.043*** −0.374 −0.732*** −0.690*** −0.302 −0.286*** −0.353***
(−2.41) (−4.70) (−5.73) (−1.53) (−3.59) (−3.84) (−1.29) (−3.24) (−4.15)
CMA −1.084*** −0.593** −0.311 −0.722*** −0.662*** −0.359 −0.362 0.069 0.048
(−3.18) (−2.45) (−1.27) (−2.69) (−2.69) (−1.54) (−0.80) (0.52) (0.40)
Adjusted R2 0.703 0.844 0.858 0.693 0.826 0.850 0.053 0.149 0.263
Observations 202 226 238 202 226 238 202 226 238
(Continued)
1565
1566
Table VIII—Continued
Panel B: Firms Backed prior to IPO by Top 10 versus Nontop 10 VCs
Long-Short Portfolio (Based on Post-IPO Funding Experience)
Firms Funded by Top 10 VCs prior to IPO Firms not Funded by Top 10 VCs prior to IPO
12 Months 36 Months 60 Months 12 Months 36 Months 60 Months
Constant −2.324 −0.530 −0.073 1.073** 0.523* 0.658***

(−1.09) (−0.50) (−0.09) (2.13) (1.90) (2.85)
Market-Rf 1.050** 0.137 0.032 0.038 0.129* 0.021
(2.27) (0.67) (0.18) (0.29) (1.80) (0.39)
SMB −0.403 −0.708** −0.478** −0.035 −0.008 −0.023
(−0.55) (−2.54) (−2.13) (−0.22) (−0.10) (−0.35)
HML −0.304 −0.691 −0.648** 0.081 −0.200 −0.188*
(−0.30) (−1.41) (−2.12) (0.28) (−1.45) (−1.85)
RMW
−0.324 −0.905*** −0.656** −0.080 −0.043 −0.120

(−0.50) (−2.97) (−2.14) (−0.38) (−0.32) (−1.30)
CMA 2.036 1.028* 1.244*** −0.151 0.037 −0.205
(1.53) (1.78) (2.65) (−0.40) (0.26) (−1.55)
Adjusted R2 0.014 0.078 0.055 0.002 0.044 0.102
Observations 63 135 204 199 226 238
Table IX
Are Firms Funded (prior to IPO) by VCs that Tend to Invest in
Companies Following the IPO Less Likely to Delist Following IPO?
The sample consists of VC-backed IPOs over the 1995 to 2010 period, as described in Table I. This
table presents results of logistic regressions, where the dependent variable is equal to 1 if the firm
delists within five years after the IPO and 0 otherwise. Control variables are all defined as of the
time of the IPO. Post-IPO funding experience is equal to the number of other companies for which
the pre-IPO VCs provided post-IPO funding, over the previous 10 years. All specifications include
year fixed effects, and standard errors are clustered by firm (z-statistics are in parentheses). The
reported coefficients are marginal effects, that is, the change in probability of receiving financing
in response to an infinitesimal change in each independent continuous variable, and, the discrete
change in the probability for dummy variables. ***, **, and * denote statistical significance at the
1%, 5%, and 10% levels, respectively. All variables are defined in Appendix C.
Backed by Top Backed by

10 VCs prior to Nontop 10 VCs
All VC-Backed Firms IPO prior to IPO
Firm Delists Firm Delists Firm Delists

Firm Firm Delists (Dropped from (Dropped from (Dropped from
Delists (Acquired) Exchange) Exchange) Exchange)
VC characteristics
Log(Pre-IPO VCs’ −0.016 0.010 −0.020*** −0.021 −0.018***
Funding (−1.43) (0.99) (−3.66) (−1.29) (−3.06)
Experience in
Public Firms + 1)
Log(Pre-IPO VC 0.008 0.002 0.004 0.020 0.004
Funding+1) (0.70) (0.19) (0.64) (1.01) (0.55)
Top 10 pre-IPO VC 0.044 0.016 0.024
Dummy (1.31) (0.54) (1.25)
#Pre-IPO VC Firms 0.022** 0.008 0.009** 0.005 0.010*
that are Young (2.25) (0.89) (1.98) (0.61) (1.81)
Firm characteristics
Negative CFO 0.040 −0.026 0.057*** 0.055 0.056***
(1.15) (−0.85) (3.41) (1.58) (2.92)
CFO 0.012 0.020 −0.011 −0.019 −0.006
(0.18) (0.42) (−0.41) (−0.39) (−0.18)
Log(Sales) 0.004 0.021* −0.007 −0.008 −0.003
(0.31) (1.73) (−1.10) (−0.60) (−0.45)
ROA −0.072 −0.060* −0.001 0.025 −0.009
(−1.44) (−1.77) (−0.07) (0.52) (−0.42)
R&D-to-Assets −0.164*** −0.093* −0.035 0.027 −0.054*
(−2.70) (−1.85) (−1.29) (0.41) (−1.81)
CAPX-to-Assets 0.093 −0.140 0.085 0.094 0.075
(0.50) (−0.83) (1.03) (0.55) (0.77)
Tobin’s Q −0.002 −0.001 −0.001 −0.004 0.001
(−0.93) (−0.80) (−0.54) (−1.60) (0.53)
Time to IPO −0.010** −0.010*** −0.001 −0.012** 0.000
(−2.53) (−3.08) (−0.42) (−2.27) (0.20)
Firm Age −0.000 0.001 −0.002*** 0.002 −0.002***
(−0.14) (1.38) (−2.58) (1.59) (−2.94)
(Continued)
Table IX—Continued
Backed by Top Backed by

10 VCs prior to Nontop 10 VCs
All VC-Backed Firms IPO prior to IPO
Firm Delists Firm Delists Firm Delists

Firm Firm Delists (Dropped from (Dropped from (Dropped from
Delists (Acquired) Exchange) Exchange) Exchange)
Debt-to-Assets 0.069 −0.027 0.064** −0.028 0.079***

(1.37) (−0.62) (2.57) (−0.33) (3.13)
Syndicated Loan 0.042 0.048* −0.008 −0.035 −0.002
(1.47) (1.90) (−0.62) (−1.25) (−0.12)
Tangibility −0.264*** −0.159* −0.057 −0.012 −0.057
(−2.60) (−1.73) (−1.22) (−0.12) (−1.05)
Cash-to-Assets −0.074 0.018 −0.061** −0.120 −0.039
(−1.14) (0.32) (−2.01) (−1.52) (−1.11)
Startup Company 0.017 −0.016 0.016 0.069** 0.019
(0.43) (−0.44) (0.87) (2.11) (0.99)
Log(Total Assets) −0.014 −0.033** 0.010 0.004 0.008
(−0.94) (−2.41) (1.37) (0.16) (1.08)
Initial Return −0.053** −0.013 −0.027** −0.000 −0.061***
(−2.45) (−0.73) (−2.06) (−0.01) (−3.09)
Pseudo-R2 0.048 0.034 0.110 0.120 0.132
Observations 1,690 1,690 1,690 376 1,228
performance if they are backed by VCs with a higher propensity to fund compa-
nies after the IPO: a one-standard-deviation increase in the post-IPO funding
experience measure is associated with a 2.7% reduction in the likelihood of
delisting for poor performance, which relative to the mean delisting rate of
10.4% represents a 26% reduction.26 Similar to the results in Table VIII, we
find that these effects are concentrated among firms backed by lower ranked
VCs.
VI. Conclusion
The typical recent IPO firm has high growth opportunities but negative
CFO, which generates high demands for external capital to fuel their
growth. In addition to SEOs, syndicated loans, and PIPEs in which hedge
funds are the typical investor, we document that VCs represent a common
source of post-IPO funding: approximately 15% of VC-backed IPO firms
raise additional funding from VCs within the first five years after going
public.
26 The implied change in the probability of delisting (in column (3)) is –0.020 × 1.37 = –0.027,
that is, –2.7%. Relative to the unconditional probability of delisting of 10.4%, this represents a 26%
decrease.
A broad array of tests suggest that these financings are motivated by high
information asymmetry within certain firm-years, which makes the firms
sensitive to Myers and Majluf (1984) problems in raising external capital,
coupled with VCs that have a comparative advantage in overcoming this
asymmetry. Our findings suggest that these investments create value both for
the VCs and for the firms, consistent with the VCs having unique information
advantages and thus providing unique value. In contrast, we find no evidence
to suggest that agency-related factors drive these investments.
Across all VCs, one of the strongest determinants of providing post-IPO
funding is whether the VC funded the firm prior to the IPO. As such, our
findings highlight the value for private firms of raising capital from a VC that
is more likely to provide post-IPO funding.
Initial submission: February 21, 2017; Accepted: August 3, 2019

Editors: Stefan Nagel, Philip Bond, Amit Seru, and Wei Xiong
Appendix A: Top 30 Venture Capital Firms

Column (1) lists the names of the 30 most active venture capitalist firms
over the 1995 to 2010 period. Column (2) shows the number of IPO firms to
which each VC provided funding. Column (3) shows the percentage of these
IPO firms that the VC funded prior to the IPO only. Column (4) shows the
percentage of these IPO firms that the VC funded both prior to the IPO and
subsequent to the IPO, and column (5) shows the percentage that the VC
funded only subsequent to the IPO (where subsequent is defined as funding
over the day 8 to year 5 period).
Percentage of Percentage of Percentage of

Number of Deals VC Deals VC Deals VC
Deals by VC Involved Only Involved Pre- and Involved Only
VC Firm Name Firm Pre-IPO Post-IPO Post-IPO
(1) (2) (3) (4) (5)
Accel Partners & Co. Inc. 55 94.5 3.6 1.8

Advent International 48 95.8 4.2 0
Corporation
Alta Partners 44 63.6 15.9 22.2
Apax Partners LLP 40 87.5 5 7.5
aPriori Capital Partners 52 88.5 3.8 11.1
Bessemer Venture Partners, L.P. 50 96 2 3.9
Domain Associates LLC 38 97.4 0 10.5
Goldman Sachs & Co. 65 90.8 3.1 6.2
Greylock Partners 45 97.8 2.2 0
HarbourVest Partners LLC 39 100 0 0
Institutional Venture Partners 50 90 2 8
Percentage of Percentage of Percentage of

Number of Deals VC Deals VC Deals VC
Deals by VC Involved Only Involved Pre- and Involved Only
VC Firm Name Firm Pre-IPO Post-IPO Post-IPO
(1) (2) (3) (4) (5)
Integral Capital Partners 53 94.3 0 5.7

Intel Capital Corporation 55 94.5 5.5 0
Kleiner Perkins Caufield & 94 96.8 3.2 0
Byers LLC
Mayfield Fund 54 98.1 1.9 0
Morgan Stanley Private Equity 39 94.9 5.1 0
New Enterprise Associates, Inc. 88 83 10.2 6.7
Norwest Venture Partners 49 98 0 4
Oak Investment Partners 68 86.8 8.8 4.4
Pliant Corp 184 94 2.2 4.3
Sequoia Capital 69 97.1 1.4 1.4
Sprout Group 58 82.8 12.1 6.8
Summit Partners LP 55 100 0 0
Sutter Hill Ventures 38 92.1 5.3 2.6
TA Associates Management, L.P. 50 98 0 2
Technology Crossover Ventures 40 87.5 5 9.8
LP
U.S. Venture Partners 38 89.5 10.5 0
Venrock, Inc. 56 87.5 8.9 3.6
Warburg Pincus LLC 54 64.8 22.2 13
Windspeed Ventures 45 100 0 0
Appendix B: Post-IPO Investments by New Enterprise Associates,

1996 to 2012
This table lists the 24 cases in which VentureXpert lists New Enterprise
Associates as investing in a newly public firm, defined as a firm that went
public within the prior five years. Issuer name, IPO date, post-IPO VC
funding date, and round amount are from VentureXpert. For each firm, we
search through S-1, S-3, 8-k, 13G, and Form 4 filings for verification of the
investment. The forms we use to verify the investment, as well as applicable
notes, are shown in the last two columns. In many cases, funding rounds
were additionally traced back to S-1 and S-3 filings, which are registration
statements typically filed a few months after a private placement that allow
the buyers to sell their shares on the secondary markets.
Post-IPO
VC
Funding Round SEC SEC Form
Issuer IPO Date Date Amount Form Date Notes
Summit Medical 8/4/1995 10/1/1996 2,256 13G 2/14/1997 New Enterprise

Systems Inc. invests
Post-IPO
VC
Funding Round SEC SEC Form
Issuer IPO Date Date Amount Form Date Notes
Clarify Inc. 11/3/1995 4/25/1997 4,351 No SEC Filinga

GelTex 11/8/1995 7/1/1998 16,600 No SEC Filinga
Pharmaceuticals
Inc.
Connective 1/31/1996 11/19/1998 11,995 13G 2/16/1999 New Enterprise
Therapeutics Inc. invests
Object Design Inc. 7/23/1996 12/31/1998 648 13G 2/12/1999 New Enterprise
invests
Object Design Inc. 7/23/1996 1/1/1999 2,014 13G 2/12/1999 New Enterprise
invests
CyberMedia Inc. 10/23/1996 1/1/1997 1,350 13G 2/19/1997 New Enterprise
invests
Applied Imaging Corp 11/7/1996 6/2/1998 10,000 8-k 6/16/1998 New Enterprise
invests
Applied Imaging Corp 11/7/1996 5/22/1997 4,000 8-k 6/4/1997 New Enterprise
invests
Carrier Access Corp 7/30/1998 9/30/1998 3,688 No SEC Filinga
Juniper Networks 6/24/1999 9/17/2001 22,000 No SEC Filinga
Inc.
TiVo Inc. 9/29/1999 10/7/2002 25,000 8-k 10/9/2002 New Enterprise
invests
Accelerated Networks 6/22/2000 12/19/2002 11,000 8-k 12/20/2002 New Enterprise
Inc. invests
Accelerated Networks 6/22/2000 3/29/2005 8-k 3/24/2005 New Enterprise
Inc. invests
Myogen Inc. 10/29/2003 10/13/2004 60,000 8-k 9/29/2004 New Enterprise
invests
Inhibitex Inc. 6/3/2004 8/29/2005 41,250 8-k 10/28/2009 New Enterprise
invests
HemoSense Inc. 6/28/2005 12/12/2006 7,000 8-k 12/14/2006 New Enterprise
invests
Sunesis 9/27/2005 10/30/2009 5,000 8-k 11/2/2009 New Enterprise
Pharmaceuticals invests
Inc.
Sunesis 9/27/2005 4/3/2009 10,000 8-k 4/3/2009 New Enterprise
Inc.
Iomai Corp 2/1/2006 10/25/2006 10,000 8-k 10/24/2006 New Enterprise
invests
Cadence 10/24/2006 2/18/2009 86,600 8-k 2/20/2009 New Enterprise
Inc.
Glu Mobile Inc. 3/21/2007 7/8/2010 23,616 8-k 7/6/2010 New Enterprise
invests
ARYx Therapeutics 11/8/2007 11/24/2008 21,600 8-k 11/12/2008 New Enterprise
Inc. invests
Alimera Sciences Inc. 4/22/2010 10/2/2012 40,000 8-k 10/2/2012 New Enterprise
invests
a Shares outstanding increases around the time of the documented post-IPO VC Funding date,
and in many cases the increase in shares outstanding times the share price at that time is approx-
imately equal to the round amount.
Appendix C: Variable Descriptions
Pre-IPO VC Characteristics (Aggregated Across all Pre-IPO VCs to Form One Firm-Level
Measure; Data from VenturXpert)
Avg Pre-IPO VC Industry Experience: log(1+rounds all pre-IPO VCs had in the previous three
years, in the same FF49 industry as the firm). In firm-year regressions, this measure is
calculated on a rolling basis.
#Pre-IPO VC Funds with Low Success: For each pre-IPO VC fund, we tabulate the number of
portfolio company exits (via IPO or M&A) over the previous three years (years –1 to –3),
relative to the number of unique firms the VC fund funded in the three years before this period
(years –4 to –6). Across our entire sample, we place VC fund-years into quartiles based on this
measure. For each deal, we tabulate the number of pre-IPO VC funds in the lowest quartile
(which equates to an exit rate of 19% or less).
#Pre-IPO VC Funds with High Success: For each pre-IPO VC fund, we tabulate the number of
portfolio company exits (via IPO or M&A) over the previous three years (years –1 to –3),
relative to the number of unique firms the VC fund funded in the three years before this period
(years –4 to –6). Across our entire sample, we place VC fund-years into quartiles based on this
measure. For each deal, we tabulate the number of pre-IPO VC funds in the highest quartile
(which equates to an exit rate of 79% or more).
#Pre-IPO VC Firms that are Young: The age of each VC firm is calculated as the difference
between the IPO year and the year in which the VC started its first fund or participated in its
first financing round. We sum the number of VCs that are six years or less at the IPO year.
Pre-IPO VC Director Dummy: A dummy equal to 1 if one or more board seats at the time of the
IPO are held by directors associated with one of the pre-IPO VCs.
Total VC Ownership at IPO: The number of shares owned by all VCs at the time of the IPO,
divided by shares outstanding after the IPO.
Pre-IPO VC Funding: Millions of dollars obtained in the last VC round prior to the IPO (in 2014
$).
Top 10 Pre-IPO VC Dummy: A dummy equal to 1 if the firm was backed by one of the top 10 VCs
prior to the IPO, which we define following Nahata (2008): JPMorgan Chase, Kleiner Perkins
Caufield & Byers, New Enterprise Associates, Sequoia Capital, Integral Capital Partners, Oak
Investment Partners, Accel Partners, Sprout Group, Goldman Sachs, and Alta Partners.
Pre-IPO VCs’ Funding Experience in Public Firms: The number of post-IPO rounds performed by
the VCs that were involved with a firm before its IPO. For each IPO firm in our sample, we
identify the VCs that provided financing prior to the IPO, and we calculate the number of
post-IPO financings of these VCs in the period beginning 10 years prior to the IPO and ending
one month prior to the firm’s IPO.
VC Characteristics (Defined at the Individual VC Level; Data from VenturXpert)
VC Industry Experience: log(1+rounds the VC had in the previous three years, in the same
FF49 industry as the firm). In firm-year regressions, this is calculated on a rolling basis.
VC is a Director on Co.’s Board: A dummy equal to 1 if one or more board seats at the time of the
IPO are held by directors associated with the VC.
#VC Funds with Low Success: We tabulate the number of portfolio company exits (via IPO or
M&A) over the preceding three years (years –1 to –3), relative to the number of unique firms
the VC fund funded in the three years before the exits (years –4 to –6 ) for each VC fund within
a VC firm family. Across our entire sample, we place VC fund-years into quartiles based on this
measure. For each year, we tabulate the number of VC funds within a VC firm in the lowest
quartile (which equates to an exit rate of 19% or less).
VC Characteristics (Defined at the Individual VC Level; Data from VenturXpert)
#VC Funds with High Success: We tabulate the number of portfolio company exits (via IPO or
M&A) over the preceding three years (years –1 to –3), relative to the number of unique firms
the VC fund funded in the three years before the exits (years –4 to –6 ) for each VC fund within
a VC firm family. Across our entire sample, we place VC fund-years into quartiles based on this
measure. For each year, we tabulate the number of VC funds within a VC firm in the highest
quartile (which equates to an exit rate of 79% or less).
VC firm is Young: A dummy equal to 1 if the VC firm age is six years or less, where age is
calculated as the difference between the IPO year and the year when the VC started its first
fund or participated in its first financing round.
VC Financed Firm Pre-IPO: A dummy equal to 1 if the VC firm financed the firm prior to the IPO
VC Ownership as of IPO: The number of shares owned by the VC at the time of the IPO, divided
by shares outstanding after the IPO.
Total # of VCs Involved Pre-IPO: The number of VCs that funded the firm, prior to its IPO
# Rounds VC Involved In: The number of pre-IPO funding rounds of the firm in which the VC
participated.
Top 10 VCs: A dummy equal to 1 if the VC firm is among the 10 most highly ranked, according to
Nahata (2008): JPMorgan Chase, Kleiner Perkins Caufield & Byers, New Enterprise
Associates, Sequoia Capital, Integral Capital Partners, Oak Investment Partners, Accel
Partners, Sprout Group, Goldman Sachs, and Alta Partners.
CRSP Variables
Bid-Ask Decile: We calculate the bid-ask spread, scaled by price, as of the month preceding each
firm-year. The only exception is the first year after the IPO, where we define this variable using
data as of the first month-end after the IPO. We sort firms into deciles each year, where firms
with the highest average spread are in decile 10.
Firm Volatility: We calculate the three-month standard deviation of the firm CRSP returns. For
firm-year regressions, we measure over the three months after the IPO for the IPO year
(acknowledging that it is not entirely observable ex ante), and over the three months prior to
the year-end for all other years.
3-Mth Lagged Market Returns: The buy-and-hold return of the value-weighted CRSP equity
index over the previous three months.
3-Mth Lagged Market Volatility: The standard deviation of the daily returns of the
value-weighted CRSP equity index over the previous three months.
Compustat Variables (Defined as of the Fiscal Year-End prior to Post-IPO Financing; All Ratios
are Winsorized at the 0.5% and 95.5% Levels)
Negative CFO: A dummy equal to 1 if cash flow from operations is negative.

R&D-to-Assets: R&D expenditures divided by assets; set equal to 0 if R&D is missing.
Sales: Millions of sales in 2014 $.
ROA: Net Income divided by assets.
Capx-to-Assets: Capital expenditures divided by assets.
Tobin’s Q: Market value of equity plus book value of assets minus book value of equity and
deferred taxes, all divided by book value of assets.
Debt-to-Assets: The sum of short-term plus long-term debt divided by assets.
Tangibility: Property plant and equipment divided by assets.
Cash-to-Assets: Cash plus marketable securities, as a fraction of assets.
Total Assets: Millions of assets in 2014 $.
Life Cycle Variables
Time to IPO: The number of years from the first VC investment (prior to the IPO) to the IPO.
Years Since IPO: The number of years between the IPO and the post-IPO VC funding.
Firm Age: The number of years since incorporation, defined as the calendar year minus the year
of incorporation (from Jay Ritter’s website). See Field and Karpoff (2002) and Loughran and
Ritter (2004) for further details.
Alternative Forms of Financing
PIPE: A dummy equal to 1 if the firm had a private investment in public equity during the year
(excluding cases in which the funding syndicate includes a VC), as recorded in Thomson
Financial.
SEO: A dummy equal to 1 if the firm had a seasoned equity offering during the year, as recorded
in Thomson Financial.
Syndicated Loan: A dummy equal to 1 if the firm had a syndicated loan during the year, as
recorded in DealScan.
Prior Syndicated Loan: A dummy equal to 1 if the firm has a syndicated loan either prior to the
IPO or at any point after the IPO up until the post-IPO VC financing, as recorded in DealScan.
Deal Terms of Post-IPO VC Financings and Other PIPEs (from PlacementTracker)
Gross Proceeds: Proceeds raised in the financing, expressed in millions of dollars.

Proceeds as % of Market Cap: Proceeds raised in the financing divided by firm market
capitalization, where market capitalization equals shares outstanding times the closing market
price two days prior to the announcement of the financing.
Convertible Fixed Rate Debt: A dummy equal to 1 if the financing included convertible, fixed rate
debt.
Common Stock: A dummy equal to 1 if the financing included common stock.
Registered: A dummy equal to 1 if the shares issued in the financing were registered at the time
of the investment; the investor is not permitted to sell the shares on public markets until the
shares are registered.
Days to Registration: Across deals that are not registered at the time of the financing, the
number of days between the financing and the first date on which the shares can be registered.
Deal Includes Warrants: A dummy equal to 1 if the deal includes warrants.
Warrant Coverage: #warrants/#securities sold among common stock issues; #warrants/(gross
proceeds/fixed conversion price) for fixed convertibles; and #warrants/(gross proceeds/closing
market price) for floating convertibles.
Discount: Percentage change between the price at which the investors purchased shares and the
market price on the close of trading two days prior to announcement of the financing.
Board Representation: A dummy equal to 1 if any investor in the funding syndicate obtained a
board seat with the financing.
Shareholder Approval: A dummy equal to 1 if the financing required shareholder approval
through a shareholder vote by all shareholders of record.
Use of Proceeds: Denotes whether the firm states in filings whether funds will be used for:
working capital, a specific project, an acquisition, or paydown of debt.
Other Controls
Initial Return: The percentage difference between the offer price and the first after-market
closing price.
Startup Company: A dummy variable equal to 1 if the SDC VC flag for the IPO company equals
“Yes.” This dummy equals 0 for cases in which SDC lists the company as having received VC
funding rounds (a requirement that applies to all companies in our sample, but which
potentially includes some private equity as well as VC-type investments) but the SDC
VC-backed dummy equals “No.”
Hedge Fund Financing Dummy: A dummy equal to 1 if a hedge fund was part of the funding
syndicate in either a PIPE or a post-IPO VC financing.
REFERENCES
Akerlof, George, 1970, The market for “lemons”: Quality uncertainty and the market mechanism,
Quarterly Journal of Economics 84, 488–500.
Barclay, Michael, and Terrence Hendershott, 2004, Liquidity externalities and adverse selection:
Evidence from trading after hours, Journal of Finance 59, 681–710.
Barrot, Jean-Noel, 2017, Investor horizon and the life cycle of innovative firms: Evidence from
venture capital, Management Science 63, 3021–3043.
Bharath, Sreedhar, Sandeep Dahiya, Anthony Saunders, and Anand Srinivasan, 2011, Lending
relationships and loan contract terms, Review of Financial Studies 24, 1141–1203.
Bharath, Sreedhar, Paolo Pasquariello, and Guojun Wu, 2009, Does asymmetric information drive
capital structure decisions? Review of Financial Studies 22, 3211–3243.
Billett, Matthew, Redouane Elkamhi, and Ioannis Floros, 2015, The influence of investor identity
and contract terms on firm value: Evidence from PIPEs, Journal of Financial Intermediation
24, 564–589.
Boot, Arnoud, 2000, Relationship banking: What do we know? Journal of Financial Intermediation
9, 7–25.
Brophy, David, Paige Ouimet, and Clemens Sialm, 2009, Hedge funds as investors of last resort?
Review of Financial Studies 22, 541–574.
Carhart, Mark, 1997, On persistence in mutual fund performance, Journal of Finance 52, 57–82.
Carpenter, Jennifer, 2000, Does option compensation increase managerial risk appetite? Journal
of Finance 55, 2311–2331.
Celikyurt, Ugur, Merih Sevilir, and Anil Shivdasani, 2012, Venture capitalists on boards of mature
public firms, Review of Financial Studies 27, 56–101.
Chaplinsky, Susan, and David Haushalter, 2010, Financing under extreme risk: Contract terms
and returns to private investments in public equity, Review of Financial Studies 23, 2789–
2820.
Chaplinsky, Susan, and David Haushalter, 2012, VIPE financing: Venture (capital) investments
in public equity, in D. Cumming, eds., The Oxford Handbook of Venture Capital (Oxford Uni-
versity Press, Oxford).
Dai, Na, 2007, Does investor identity matter? An empirical examination of investment by venture
capital funds and hedge funds in PIPEs, Journal of Corporate Finance 13, 538–563.
Denis, David, and Stephen McKeown, 2017, Persistent operating losses and corporate financial
policies, Working paper, University of Pittsburgh.
Diamond, Douglas, 1984, Financial intermediation and delegated monitoring, Review of Economic
Studies 62, 393–414.
Duarte, Jefferson, Xi Han, Jarrad Harford, and Lance Young, 2008, Information asymmetry, in-
formation dissemination and the effect of Regulation FD on the cost of capital, Journal of
Financial Economics 87, 24–44.
Fama, Eugene, 1985, What’s different about banks? Journal of Monetary Economics 15, 29–39.
Fama, Eugene, and Kenneth French, 1993, Common risk factors in the returns on stocks and
bonds, Journal of Financial Economics 33, 3–56.
Fama, Eugene, and Kenneth French, 2015, A five-factor asset pricing model, Journal of Financial
Economics 116, 1–22.
Farre-Mensa, Joan, and Alexander Ljungqvist, 2016, Do measures of financial constraints measure
financial constraints? Review of Financial Studies 29, 271–308.
Field, Laura, and Jon Karpoff, 2002, Takeover defenses of IPO firms, Journal of Finance 57,
1857–1890.
Field, Laura, Michelle Lowry, and Anahit Mkrtchyan, 2013, Are busy directors detrimental? Jour-
nal of Financial Economics 109, 63–82.
Glosten, Lawrence, and Paul Milgrom, 1985, Bid, ask and transaction prices in a specialist market
with heterogeneously informed traders, Journal of Financial Economics 14, 71–100.
Gompers, Paul, 1996, Grandstanding in the venture capital industry, Journal of Financial Eco-
nomics 42, 133–156.
Gompers, Paul, Anna Kovner, Joshua Lerner, and David Scharfstein, 2008, Venture capital in-
vestment cycles: The impact of public markets, Journal of Financial Economics 87, 1–23.
Gompers, Paul, and Joshua Lerner, 1996, The use of covenants: An empirical analysis of venture
partnership agreements, Journal of Law and Economics 39, 463–498.
Hadlock, Charles, and Christopher James, 2002, Do banks provide financial slack? Journal of
Finance 57, 1383–1419.
Hadlock, Charles, and Joshua Pierce, 2010, New evidence on measuring financial constraints:
Moving beyond the KZ index, Review of Financial Studies 23, 1909–1940.
Hertzel, Michael, Mark Huson, and Robert Parrino, 2012, Public market staging: The timing of
capital infusions in newly public firms, Journal of Financial Economics 106, 72–90.
Hertzel, Michael, Michael Lemmon, James Linck, and Lynn Rees, 2002, Long-run performance
following private placements of equity, Journal of Finance 57, 2595–2617.
Hochberg, Yael, Alexander Ljungqvist, and Yang Lu, 2007, When you know matters: Venture
capital networks and investment performance, Journal of Finance 62, 251–301.
Kaplan, Steven, and Antoinette Schoar, 2005, Private equity performance: Returns, persistence,
and capital flows, Journal of Finance 60, 1791–1834.
Kaplan, Steven, and Luigi Zingales, 1997, Investment-cash flow sensitivities provide useful mea-
sures of financing constraints? Quarterly Journal of Economics 112, 169–215.
Kelly, Brian, and Alexander Ljungqvist, 2012, Testing asymmetric-information asset pricing mod-
els, Review of Financial Studies 25, 1366–1413.
Krishnamurthy, Srinivasan, Paul Spindt, Venkat Subramaniam, and Tracie Woidtke, 2005, Does
investor identity matter in equity issues? Evidence from private placements, Journal of Fi-
nancial Intermediation 14, 210–238.
Krishnan, C. N. V., Vladimir Ivanov, Ronald Masulis, and Ajai Singh, 2011, Venture capital reputa-
tion, post-IPO performance, and corporate governance, Journal of Financial and Quantitative
Analysis 46, 1295–1333.
Lee, Peggy, and Sunil Wahal, 2004, Grandstanding, certification, and the underpricing of venture
capital backed IPOs, Journal of Financial Economics 73, 375–407.
Lerner, Josh, 1995, Venture capitalists and the oversight of private firms, Journal of Finance 50,
301–318.
Lim, Jongha, Michael Schwert, and Michael Weisbach, 2018, The economics of PIPEs, Working
paper, California State University at Fullerton.
Loughran, Tim, and Jay Ritter, 2004, Why has IPO underpricing changed over time? Financial
Management 2004 (Autumn), 5–37.
Metrick, Andrew, and Ayako Yasuda, 2011, Venture Capital and the Finance of Innovation, 2nd
edition (John Wiley & Sons, Hoboken, NJ).
Modigliani, Franco, and Merton Miller, 1958, The cost of capital, corporation finance and the theory
of investment, American Economic Review 48, 261–297.
Myers, Stewart, and Nicholas Majluf, 1984, Corporate financing and investment decisions when
firms have information that investors do not have, Journal of Financial Economics 13, 187–
221.
Nahata, Rajarishi, 2008, Venture capital reputation and investment performance, Journal of Fi-
nancial Economics 90, 127–151.
Nanda, Ramana, and Matthew Rhodes-Kropf, 2018, Coordination frictions in venture capital syn-
dicates, NBER Working paper.
Opler, Tim, Lee Pinkowitz, Rene Stulz, and Rohan Williams, 1999, The determinants and impli-
cations of corporate cash holdings, Journal of Financial Economics 52, 3–46.
Ozmel, Umit, Timothy E. Trombley, and M. Deniz Yavuz, 2019, Outside insiders: Does access to
information prior to an IPO generate a trading advantage after the IPO? Journal of Financial
and Quantitative Analysis 54, 303–334.
Ramakrishnan, Ram T. S., and Anjan Thakor, 1984, Information reliability and a theory of financial
intermediation, Review of Economic Studies 51, 415–432.
Sahlman, William, 1990, The structure and governance of venture capital organizations, Journal
of Financial Economics 27, 473–521.
Sørensen, Morten, 2007, How smart is smart money? A two-sided matching model of venture
capital, Journal of Finance 62, 2725–2762.
Stiglitz, Joseph, and Andrew Weiss, 1981, Credit rationing in markets with imperfect information,
American Economic Review 71, 393–410.
Tian, Xuan, and Tracy Wang, 2014, Tolerance for failure and corporate innovation, Review of
Financial Studies 27, 211–255.
Vega, Clara, 2006, Stock price reaction to public and private information, Journal of Financial
Economics 82, 103–133.
Whited, Toni, and Guojun Wu, 2006, Financial constraints risk, Review of Financial Studies 19,
531–559.
Wruck, Karen, 1989, Equity ownership concentration and firm value: Evidence from private equity
financing, Journal of Financial Economics 23, 3–28.
Supporting Information
Additional Supporting Information may be found in the online version of this
article at the publisher’s website:
Appendix S1: Internet Appendix.
Replication code.

The Journal of Finance - 2020 - ILIEV - Venturing Beyond The IPO Financing of Newly Public Firms by Venture Capitalists

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

The Journal of Finance - 2020 - ILIEV - Venturing Beyond The IPO Financing of Newly Public Firms by Venture Capitalists

Uploaded by

Copyright:

Available Formats

15406261, 2020, 3, Downloaded from https://onlinelibrary.wiley.com/doi/10.1111/jofi.12879 by University Of Sheffield, Wiley Online Library on [04/02/2023].

Venturing beyond the IPO: Financing of Newly

A LARGE BODY OF LITERATURE documents that venture capitalists (VCs) focus

1See FatBrain.com’s November 1, 1999 8-K filing in the EDGAR system.

I. Data and Descriptive Statistics

in 80% of cases. These companies tend to be younger and smaller, suggesting

B. Descriptive Statistics on Final Sample

Panel A: Descriptive Statistics in Firm Years after IPO

Firms with Post-IPO Firms without

Bid-Ask Decile 6.705 6.096 0.609***

Panel B: Deal Terms

Mean Median Observations

Type of security sold

Average Number of Average

Post-IPO VC has directors 48.3% 1.66

II. Factors that Influence Post-IPO Venture Investments

which violations of the strict assumptions underlying the theory, related to

Table II provides evidence on the factors that relate to these choices

Post-IPO Financing Equal To:

VC Financing PIPE SEO Synd Loan

Panel A: OLS Regressions

Information asymmetry measures

(0.27) (2.35) (−0.81) (−0.81)

Post-IPO Financing Equal To:

VC Financing PIPE SEO Synd Loan

#Pre-IPO VCs that are Young −0.0009 0.0016 −0.0013 −0.0007

ROA −0.0236** −0.0065 0.0075 0.0168

Post-IPO Financing Equal To:

VC Financing PIPE SEO Synd Loan

Firm Age −0.0000 −0.0004*** 0.0008 −0.0009**

Observations 5,327 5,506 4,244 4,547

Panel B: Multinomial Logit: Dependent Variable is First Financing

Information asymmetry measures

Post-IPO Financing Equal To:

VC Financing PIPE SEO Synd Loan

R&D-to-Assets 0.5227 −0.1287 −0.1371 −0.7496*

Log(Pre-IPO VC Funding + 1) 0.1694 0.2766** 0.1234*** 0.0058

Analogously, to capture high-performing VC funds’ lower incentives to take

number of unique firms in which it invested over years –10 to –8.

banks’ use of private information enables them to overcome information

(1) (2) (3) (4) (5) (6)

VC info advantage proxies

VC is a Director on Co.’s Board 5.1183*** 15.5242*** 3.3403 4.9075*** 5.5405***

(0.84) (5.82) (1.74) (0.82) (0.87)

(1) (2) (3) (4) (5) (6)

Total # of VCs Involved Pre-IPO −0.2710**

Panel B: Variance Decomposition

VC info advantage proxies

longer term horizon.

III. Returns to Investors that Provide Financing

3 Months 6 Months 9 Months 12 Months

Panel A: Post-IPO VC Financings BHARs

Constant 30.44*** 37.31*** 39.28*** 31.42***

Panel B: Post-IPO VC Financings BHARs, where VC is Top 10

Constant 42.44*** 68.87*** 70.55** 60.76**

Panel C: Post-IPO VC Financings BHARs, where VC is Not Top 10

Constant 26.60*** 27.08* 28.93** 21.64**

Panel D: PIPE BHARs

Constant 27.27*** 21.22*** 13.08* 9.09

Panel E: PIPE BHARs with Hedge Fund Involvement

Constant 20.36*** 16.06** 12.25 3.72

Proceeds Raised/ Board

Firm Age −0.0000 −0.0004* 0.0008 −0.0009

Log(Pre-IPO VC Funding + 1) 0.1694 0.2766 0.1234* 0.0058

VC is a Director on Co.’s Board 5.1183* 15.5242* 3.3403 4.9075* 5.5405*

Constant 30.44* 37.31* 39.28* 31.42*

Constant 42.44* 68.87* 70.55 60.76

Constant 26.60*** 27.08* 28.93 21.64

Constant 27.27* 21.22* 13.08* 9.09

Constant 20.36* 16.06 12.25 3.72

−0.324 −0.905* −0.656 −0.080 −0.043 −0.120

Debt-to-Assets 0.069 −0.027 0.064 −0.028 0.079*