Abstract
In this paper, we study how the support of heterogeneous venture capital firms (VCs), that is: independent venture capital firms (IVCs), bank-affiliated venture capital firms (BVCs), and corporate venture capital firms (CVCs), shapes the delisting route of companies through business failure and merger and acquisitions (M&As), while distinguishing between European M&As and extra-EU M&As after the initial public offering (IPO). We find that the influence of the VCs in the firms’ post-IPO delisting varies according to the mode of delisting and the type of venture capitalist. In particular, we find that the presence of leading IVC and BVC investments before IPO is related to a lower likelihood of exiting the stock market through business failure but does not significantly affect the likelihood of M&As. In contrast, the presence of CVC investors is related to a higher likelihood of delisting through extra-EU M&As.
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Notes
It is commonly accepted that leading VC investors, which make the earliest and/or the largest investment to support the new venture before IPO, are more influential, and provide activities that add more value than the other investing VCs (Barry et al. 1990; Lee et al. 2011; Lee and Wahal 2004). We defined the leading VC as the VC with the largest investment in the last round before the date of the IPO.
The literature has shown that there are differences between voluntary delisting and bankruptcy which are both forms of firm failure. Voluntary liquidation takes place when asset proceeds are sufficient to repay all liabilities (Balcaen et al. 2011). In contrast, a bankruptcy is typically forced by creditors or a court as a result of a firm’s failure to fulfill payments (Balcaen et al. 2011). Therefore, a company undergoing a voluntary liquidation might favor a delisting through acquisition.
Most of the literature on different types of VCs and certification relates to their work at IPO and offers mixed results depending on the characteristics of the different VCs and the countries of analysis. For instance, based on US data, Dolvin et al. (2007) find that BVCs are superior to IVCs in providing certification services during the going-public process. Along the same line, Wang and Wan (2013) find that compared to IVCs, CVCs are more able to certify the quality of US firms during the IPO process. In the case of European countries (UK, France, and Germany), Rindermann (2003) shows that there is no uniform evidence indicating systematic differences in the certification role between the different types of VCs.
Orbit is a patent database which allows users to build and organize patent portfolios, and examine individual patents. The Orbit patent database® has developed a family definition (FamPat) which provides comprehensive family coverage of worldwide patent publications.
Intra-EU M&As includes domestic acquisitions (e.g., a French company buying in France), as well as cross-border acquisitions within Europe (e.g., a French company buying in Germany or the UK). Extra-EU M&As includes companies outside of Europe buying European companies (e.g., a US company buying in Germany or the UK).
When the date of incorporation was not available in the EURIPO database, we obtained it from Venture Source, Amadeus database®, or company websites.
Our model specifications include robust variance estimates with an added adjustment for clustering at the stock market level.
We excluded the group of GVC-backed companies composed of only 6 firms. The effect of GVC is not statistically significant in our econometric analysis for any form of exit and coefficients are similar to those presented. For the sake of brevity, the regressions are not included here, and we limit our analysis to the group of CVC-, IVC-, and BVC-backed firms. Results are available upon request.
In our robustness checks (available on request), we introduced underwriter reputation based on the amount of money raised by the underwriting firm at IPO (Migliorati and Vismara 2014). Regression results show that proceeds-weighted rankings of underwriter reputation are not statistically significant, suggesting that in Europe they do not affect the hazard of exit after IPO.
In robustness checks, we considered the VC experience (which is calculated as the age of the leading VC firm at the time of the investment) as an alternative measure of VC reputation. Regression results show that both measures do not affect the hazard of distinct modes of delisting after IPO. In addition, regression results are similar to those presented above. Results are available upon request.
As an alternative distinction of M&As, we distinguish between domestic (for instance an acquirer and a target both located in France) and CBM&As (for instance an acquirer located in France and a target located in Germany). Regression results are similar to those presented above but the coefficient of Corporate VC is reduced to 0.892, which is in line with the intuition that CVCs are particularly important to attract acquirers located in more distant countries. For the sake of brevity, the regressions have not been included but are available upon request.
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Acknowledgments
Previous drafts of this paper have benefited from helpful discussion and comments of colleagues at CREM-Université de Rennes 1, Université Paris 1 Panthéon-Sorbonne, EU-SPRI ECC Milan Conference 2017, and DRUID 2018. In particular, we would like to thank Vincenzo Butticè, Jesper Lindgaard Christensen, Jean-François Sattin, Maarten Rabijns, and Ellsa Ughetto. We wish also thank the editor (Enrico Santarelli) and two anonymous referees for very valuable inputs and suggestions.
Funding
This work was supported by a Post-doc Fellowship to DU from the French State in the frame of the Bordeaux IdEx “Investments for the Future” program (ANR-10-IDEX-03-02) and received a financial support from Université Paris 1 Panthéon-Sorbonne.
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Useche, D., Pommet, S. Where do we go? VC firm heterogeneity and the exit routes of newly listed high-tech firms. Small Bus Econ 57, 1339–1359 (2021). https://doi.org/10.1007/s11187-020-00351-x
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DOI: https://doi.org/10.1007/s11187-020-00351-x
Keywords
- IPO survivability
- Independent venture capital
- Corporate venture capital
- Bank-affiliated venture capital
- High-tech firms
- Firm failure
- Cross-border M&As