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