The study described herein used a different
lens to investigate factors related to venture capital
financing. It examined a large sample of publicly owned new
ventures at the time of their IPOs. The IPO represents a
critical time for the firm in which it is in the best interest of
owners, including venture capitalists, to ensure that the firm is
at its best when it undergoes intense public scrutiny.
Thus, even in cases where venture capitalists invest in firms
that don't exactly match criteria they feel important, they have
compelling reasons to exert their influence as owners to mold
those firms into forms they think best prior to their IPOs.
Details of the study are described below.
The sample included U.S. based companies founded between 1983 and 1988 that issued IPOs while not more than six years old. Including firms that issued IPOs over several years helped avoid potential biases introduced by sampling from just one year and provided a sample large enough for the study. Using 1988 as the cutoff ensured that public data would be available for each firm for at least two years after its IPO.
To identify the sample, a comprehensive list of firms that issued IPOs from 1983 to 1993 was compiled from listings in Investment Dealer's Digest. Information from Moody's OTC Industrial Manual, Moody's Industrial Manual, and Moody's OTC Unlisted Manual was then used to further screen the sample. Companies that were incorporated more than six years prior to the IPO, investment funds, holding companies, and firms established for the sake of acquiring existing businesses were eliminated. The sample was limited to U.S. based ventures in order to control for differences across countries and avoid problems related to data availability. The remaining companies were contacted by phone to verify their founding dates and those older than six years were deleted. This yielded a sample of 214 new ventures operating in 33 industries. Of these firms, 156 had some venture capital ownership at the time of the IPO and 58 did not. Of the 156 firms backed by venture capitalists, ownership by venture capitalists ranged from 7 percent to 100 percent.
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Last Updated 03/30/98