Venture Capital Funds and Post-IPO Performance in Booms and Busts: Evidence from Israeli IPOs in the US in the 1990s

10/09/2003 |  Ber Hedva, Yafeh Yishay
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Finacial Markets and Financial Stability
Venture Capital Funds and Post-IPO Performance in Booms and Busts: Evidence from Israeli IPO's in the US in the 1990s
Hedva Ber and Yishay Yafeh
Abstract

This paper evaluates the ability of VC funds to identify and bring to market successful high-tech Israeli companies during the period 1991 to 2000. Using a newly constructed and highly detailed database we find that: (1) According to stock returns and other measures, the post-IPO performance of VC-backed companies did not differ from that of non-VC companies, throughout the 1990s. Furthermore, we show that the entire distributions of stock returns among VC-backed and other firms are identical. (2) The probability of survival until the IPO stage was higher for VC-backed companies. We interpret this as evidence that an important contribution of VC funds may be in increasing the survival rates of young technology-intensive firms, rather than in identifying high performers.

JEL Classification: G20, G30.

Keywords: Venture capital, IPO, survival rate, long-run underperformance.

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