Vladimir I. Ivanov

Venture Capital Reputation, Post-IPO Performance and Corporate Governance

We examine the association of a venture capital (VC) firm’s reputation with the post-initial public offering (IPO) long-run performance of its portfolio firms. We find that VC reputation, measured by the past market share of VC-backed IPOs, has significant positive associations with long-run firm performance measures. While more reputable VCs initially select better-quality firms, more reputable VCs continue to be associated with superior long-run performance, even after controlling for VC selectivity. We find that more reputable VCs exhibit more active post-IPO involvement in the corporate governance of their portfolio firms, and this continued VC involvement positively influences post-IPO firm performance.

The Determinants of Issue Cycles for Initial Public Offerings

This paper identifies the determinants of market-wide and industry-specific security issue cycles using an autoregressive conditional duration model. We examine the business conditions, investor sentiment, and time-varying asymmetric information hypotheses and show that issue activity in different industries is consistent with different explanations. We find that the business conditions and sentiment hypotheses explain issue activity by manufacturing firms; while issue activity by financial institutions is partly explained by the sentiment hypothesis. On the other hand, none of these explanations are capable of explaining issue activity in the business services industry. Surprisingly, when all of these industries are pooled to examine market-wide activity, we find that none of these hypotheses are significantly related to issue activity. One explanation is that market-wide aggregation washes out much of the industry-specific information because issue activity is not perfectly correlated across industries. Using this observation, we then consider whether technological innovations are important determinants of industry-specific issue activity. We test for industry contagion by examining the periods before and after the Netscape initial public offering. We find evidence of an increase in the correlation of issue activity in related industries, which is consistent with the technological innovations hypothesis.

Strategic Alliances and Corporate Governance in Newly Public Firms: Evidence from Venture Backed IPOs

We investigate the corporate governance of venture capital (VC) backed IPOs that enter into strategic alliances. Startups can have alliances with outside strategic partners and with parents of corporate VCs (CVCs), who primarily invest in startups for strategic reasons. Both CVCs and outside strategic alliance partners can influence an IPO firm’s corporate governance. We find that firms with strategic alliances have greater independent director representation, more staggered boards and forced CEO turnovers and smaller percentage of new shares and secondary share sales. Comparing the governance of startups with strategically oriented CVCs backing to those with outside strategic alliance partners shows stronger effects in firms backed by CVCs.

Strategic Alliances and Corporate Governance in Newly Public Firms: Evidence from Corporate Venture Capital

We examine IPOs of startups backed by corporate venture capitalists (CVCs) and the propensity of CVC parents to establish strategic alliance with these startup firms. We investigate the differences in the governance structures of venture capital (VC) backed IPO firms. A major difference in objectives between CVCs and traditional venture capitalists (TVCs) is that CVCs often invest for strategic reasons and their parent firms frequently enter into various forms of strategic business relations with their portfolio firms which persist well beyond the IPO. We argue that such strategic alliances can have a significant impact on the governance structure of CVC backed firms, both when they go public and in the following years. Using a sample of VC backed IPOs, we evaluate several hypotheses concerning a CVCs role in the corporate governance of newly public firms. We find that strategic CVC backed IPOs have weaker CEOs and a larger proportion of independent directors on their boards and compensation committees compared to a matched sample of TVC backed IPO firms. CVC backed IPO firms also have a higher frequencies of staggered boards and forced CEO turnovers. Comparing the corporate governance of IPO firms having strategic alliances with CVC parents with TVC backed IPOs with outside strategic alliances, we find strategic CVC investors have a mean ownership stake of 16.4% compared to 2.2% for outside strategic partners and the strategic CVCs hold significantly more board seats than other strategic alliance partners, both pre- and post-IPO. Finally, these two subsamples of IPO issuers have similar frequencies of takeover defenses.

Soft and Hard Information and Signal Extraction in Securities Crowdfunding

We examine the impact of information flows on financing and the relative roles of hard information, soft information, and certification of issuer quality by third parties, using novel evidence from the US securities-based crowdfunding market. While hard information about the issuer’s financial condition and experience has only marginal relevance for offering outcomes, third-party certification of issuer quality as well as soft information about the issuer proxied by social media following plays a significant role in crowdfunding offerings. The relative roles of hard information and certification are greatest in offerings of more information-sensitive securities and when investors are less likely to derive nonpecuniary returns from participating in an offering. Further, there is evidence of partial substitution between different signals of issuer quality. Both third-party certification and issuer social media following are positively related to the valuation obtained by the issuer. Issuers tailor deal features, specifically, the choice of funding target flexibility and offering duration, to the level of information asymmetry about issuer quality. Finally, there is some evidence of geographic matching, with issuer characteristics and local availability of platforms affecting distance between issuers and platforms.

Reducing Uncertainty Through a Two-Stage IPO

We examine the effects on IPO uncertainty of an alternative going-public mechanism – the two-stage IPO, where a firm first gets quoted on the OTC market, and then upgrades to a national exchange where it first issues public equity. We find that a two-stage IPO firm experiences lower underpricing and return volatility than does a similar traditional IPO firm. We also find that uncertainty decreases significantly between the times of first OTC market quotation and upgrade. We show suggestive evidence that two-stage IPOs with greater disclosure during the first stage experience greater reduction in uncertainty. Our results are robust to controls for the potentially endogenous choice of a two-stage IPO.

Which Limited Partners Limit VC Opportunism

We examine the response of different types of Limited Partners (LPs) to alleged opportunistic behavior on the part of Venture Capitalists (VCs). We use a sample of litigated VCs (identified by Atanasov, et al, 2012, Journal of Finance) to proxy for VC opportunistic behavior. Based on their presumed sensitivity to VC malfeasance and headline risk, we predict that university endowments and economic development authorities will be most likely to respond negatively to potential bad press. To test our hypothesis, we employ differences-in-differences (DiD) analysis and compare the participation of different types of LPs in VC funds before and after litigation relative to the LPs of otherwise similar, matched VCs that are not subject to litigation. We find that endowments reduce by more than 50% their participation in follow-on investment funds offered by litigated VCs relative to other types of LPs. Our results suggest that the threat of university endowment withdrawal of funding can deter VC opportunism.

Corporate Venture Capital and Corporate Governance in Newly Public Firms: Evidence from Venture Backed IPOs

We investigate the corporate governance of venture capital (VC) backed IPO firms that enter into strategic alliances. Startups often have alliances with outside strategic partners and with parents of corporate VCs (CVCs), who primarily invest in startups for strategic reasons. Both CVCs and outside strategic alliance partners can influence an IPO firm’s corporate governance. We find that firms with strategic alliances have greater independent director representation, more staggered boards and forced CEO turnovers and smaller percentage of new shares and secondary share sales. Comparing the governance of IPO firm with strategically oriented CVCs backing to IPO firms with outside strategic alliance partners, we find significantly stronger effects in firms backed by CVCs.