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Beyond IPO

Venturing Beyond the IPO: Financing of Newly Public Firms by Pre-IPO Investors

December 02, 2019

Michelle Lowry, TD Bank Endowed Professor of Finance, and coauthor show that venture capitalists (VC) frequently invest in firms that have recently gone public, contrary to the common belief that they only invest in private firms. VC financings of firms after they go public are value-increasing for both the VCs and for the underlying companies.

Key Insights

  • Approximately 15% of VC-backed firms raise additional capital from venture capitalists in the one to five years after going public. These investments are concentrated in companies that have high demands for capital but whose true value is highly uncertain.
  • These financings are viewed as good news by the market; the companies’ stock prices increase approximately 6% when they are announced.
  • Stock returns are even greater in cases where the VC has more inside information regarding true company value: when the VC is sitting on the company’s board, average abnormal returns are 15

“Venturing Beyond the IPO: Financing of Newly Public Firms by Pre-IPO Investors” by Peter Iliev (Pennsylvania State University) and Michelle Lowry (Drexel University).

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TD Bank Endowed Professor, Professor, Finance