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Size and Diversity in VC syndicates and their impact on IPO performance

Falconieri, S., Filatotchev, I. and Tastan, M. (2018). Size and Diversity in VC syndicates and their impact on IPO performance. European Journal of Finance, doi: 10.1080/1351847X.2018.1560345

Abstract

This paper investigates the impact of venture capital (VC) syndicate size and composition on the IPO and post IPO performances of investee companies in an attempt to shed some light on the extent to which larger and more diverse syndicates are more likely to suffer from internal agency problems which might hinder the decision making process and lead to less value added for their portfolio companies. The question is of great relevance because, while the vast majority of the empirical literature compares VC backed IPOs with non VC backed ones, most VC funding is provided by syndicates of two or more financiers.

We construct alternative measures of size as well as diversity based on several VC characteristics such as age, geographic location, type and affiliation of VC firms and find that larger and more diverse syndicates are associated with higher underpricing and lower valuation at the IPO date. Furthermore we provide evidence that that diversity and size are negatively correlated to the long term performance of the IPO firms and this finding is robust to several alternative measures of long term performance.

Publication Type: Article
Additional Information: This is an Accepted Manuscript of an article to be published by Taylor & Francis in European Journal of Finance, and is available online: http://www.tandfonline.com/10.1080/1351847X.2018.1560345
Publisher Keywords: Syndicates, venture capital, crisis, IPO Valuation, , corporate governance, IPO performance
Subjects: H Social Sciences > HD Industries. Land use. Labor > HD28 Management. Industrial Management
Departments: Cass Business School > Management
URI: http://openaccess.city.ac.uk/id/eprint/20919
[img] Text - Accepted Version
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