Digging for fool’s gold : an empirical study on factors affecting initial stock performance of venture capital-backed IPOs

Abstract

We analyze the performance of venture-backed IPOs on the New York Stock Exchange and Nasdaq between 2011 and 2019. Throughout this period, a large number of venture-backed tech companies with billion-dollar valuations have gone public, and many have experienced significant valuation cuts during their first months of trading. By using multiple regression analysis and the Mann-Whitney U test, we find evidence of a positive relationship between offer size and first-day returns. We also find that tech companies and unprofitable companies achieve higher first-day returns than other companies. When looking at the three months after the first day of trading, the analyses indicate opposite effects, and we find that unprofitable tech companies going public achieve significantly lower returns than other companies. However, results for the three-month time period are in general less conclusive than those for the first-day of trading. Contrary to our hypothesis, the amount of pre-IPO funding does not seem to affect aftermarket performance. We analyze the performance of venture-backed IPOs on the New York Stock Exchange and Nasdaq between 2011 and 2019. Throughout this period, a large number of venture-backed tech companies with billion-dollar valuations have gone public, and many have experienced significant valuation cuts during their first months of trading. By using multiple regression analysis and the Mann-Whitney U test, we find evidence of a positive relationship between offer size and first-day returns. We also find that tech companies and unprofitable companies achieve higher first-day returns than other companies. When looking at the three months after the first day of trading, the analyses indicate opposite effects, and we find that unprofitable tech companies going public achieve significantly lower returns than other companies. However, results for the three-month time period are in general less conclusive than those for the first-day of trading. Contrary to our hypothesis, the amount of pre-IPO funding does not seem to affect aftermarket performance. Keywords – NHH, master thesis, initial public offerings, venture capital