Effects of Venture Capital Mega-Deals on IPO Success and Post-IPO Performance

Abstract

Venture capital financing rounds with transaction volumes of 100 million US dollars or more have become an integral part of the US venture capital market within the last decade. We aim to determine whether such mega-deals are a quality signal for equity investors in the event of an IPO. Based on a sample of 364 US IPOs, we find that companies that have received a venture capital mega-deal perform, on average, superior IPOs and exhibit favorable post-IPO performance.

Keywords:

• instrumental variables
• IPO success
• mega-deal
• post-IPO performance
• venture capital

PL Credits: 2.0:

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 Available: https://eikon.refinitiv.com. This resource requires installation of the database on a standalone computer. The URL is the best available source for information about the database.

2 Available at https://site.warrington.ufl.edu/ritter/ipo-data/

3 Available at site.warrington.ufl.edu/ritter/ipo-data

4 Available at opencagedata.com

5 We use ln-transformed dependent variables when examining effects on proceeds and valuations. Hence, the coefficients in the regression represent the effect of a mega-deal on the ln-transformed variable. To obtain the effect on the actual variable, we need to look at exponentiated regression coefficients: exp(0.931)≈2.5.

6 To test the robustness of these results to the choice of instruments and the functional form of the instrumental variables approach, we perform propensity score matching and are able to confirm the results. A more detailed explanation by the authors is available upon request.

Additional information

Notes on contributors

Nico Lehnertz

Nico Lehnertz is a research assistant at the Chair of Entrepreneurship and Finance at Heinrich Heine University, Düsseldorf, Germany.

Carolin Plagmann

Carolin Plagmann was a postdoc at the Chair of Entrepreneurship and Finance at Heinrich Heine University Düsseldorf when the paper was written; she now heads the Investor Network at BayStartUP, Munich, Germany.

Eva Lutz

Eva Lutz is a professor of Entrepreneurship and Finance at Heinrich Heine University, Düsseldorf, Germany.