Does VC Ownership Disappear After IPO? The Role of Post-IPO VC Ownership to IPO Firms’ Outcomes

This study investigates how venture capital (VC) ownership affects strategy and financial performance of newly public firms after IPOs. We find that a significant proportion of VC firms hold shares after the IPO of their investee company. Given that VC funds typically have a fixed life, we expect there is a conflict of interest between VC shareholders and newly public firms. VC shareholders that want to maximize returns in the short run may hinder newly public firms’ managers from investing in projects that are potentially value- creating but time-consuming. Therefore, we argue that post-IPO VC ownership discourages newly public firms’ long-term investments such as R&D, workforce, and capital expenditure, and as a result, it affects financial performance negatively. In an analysis of VC-backed newly public firms in U.S. technology-intensive industries where long horizon corporate investment is particularly critical, we find supportive evidence of these arguments while addressing potential endogeneity concerns.