Smart money? The impact of having top venture capital investors and underwriters backing a venture

Abstract

One hundred and sixty two venture-capital-backed internet and software companies were examined that floated IPOs in 1998 and 1999 to see how the quality of the venture capital firm and the quality of the underwriter affected market capitalization. It was found that companies backed by top venture capital firms and taken public by top underwriters had higher market capitalizations and produced higher returns for their venture capitalists than other companies. In the post-IPO market, only the quality of the underwriter made a difference to the market capitalization. It was also found that there was a noticeable deterioration in the overall pre-IPO financial performance in the 1998-1999 era compared with the 1980s.