Venture capital and initial public offering

I use the SDC initial public offering (IPO) data to study the role of venture capitalists (VC) and the implications of their presence in the going-public process.;I firstly examine the implications of VC reputation for the post-IPO performance of the newly public stocks. I propose a Venture Capital 'Reputation Index' that explicitly captures the dynamic nature of VC reputation. The Reputation Index also captures the short-term economic performance and visibility of a VC firm. These two components are important determinants to reputation and are new to the existing literature. The proposed index explains the post-IPO stock return over 1- and 2-year horizons within a group of VC-backed IPOs and also within the overall IPO sample that includes VC- and nonVC-backed IPOs. After controlling for other existing reputation measures, such as the age of VC firms, total capital under management, aggregate investment in the portfolio companies, the number of portfolio companies, and the number of investment rounds participated, the index still shows strong and robust predictive power.;Secondly, I explore the post-IPO ownership dynamics of venture capitalists in the initial public offering backed by VCs. Venture Capitalists (VC) do not always cash out their investment immediately at an IPO or even after the lockup period. There is significant variation in the selling decision and timing of venture capitalists after the IPO. I examine the determinants of such variation at lockup expiration and post-expiration, respectively. Four competing hypotheses are proposed to explain the selling decision of venture capitalists at the lockup expiration: (1) an information trading hypothesis; (2) a reputation maximization hypothesis; (3) a reputation establishment hypothesis; and (4) an information asymmetry hypothesis. The results support the reputation maximization hypothesis and information asymmetry hypothesis. I further analyze the selling decision of VCs after the lockup expiration by examining the investment duration of VCs. I find that a good prior return of an IPO firm will significantly increase the likelihood of VC selling on lockup expiration and also shorten the investment duration of VCs post-expiration.