> > The abnormal return is much more pronounced when the firm is
>> venture financed, and we find that venture funds sell more
>> aggressively than other pre-IPO shareholders.
>
>The tone of this statement is inflamatory; isn't this as it should
>be?
Isn't it exciting when professors of finance use heated language?
> Venture funds cash out after the IPO because that's what they
>do: take companies from formation to the public. Once they do
>that, they return the invested capital to the fund members, typically
>so that they cycle can repeat. If that means an aggregate "permanent"
>1.8% drop in returns, isn't that a small price to pay for the
>typically two to three orders of magnitude change in valuation over
>the lifetime of the investment?
The paper doesn't report "lifetime" returns. Figure 10 does have a chart showing returns relative to the market average for venture-backed and non-venture-backed IPOs from 50 trading days before the unlock date and 50 days after. Both kinds underperform the market average for the entire 100-day period, with the venture-backed shares doing worse - especially after the unlock date. The general picture is consistent with the established fact that IPOs are in general lousy investments; the presence of a venture capitalist seems to be a marker for extreme lousiness. Assuming VCs to be "smart money," who would want to buy what they're selling?
Doug