The analysis, commissioned by EVCA and conducted by the Justus-Liebig-University Giessen, covers a period from 1996 to 2010 and assesses return and performance characteristics across two complete stock market cycles.
The objective of this study is to analyse the performance of venture capital-backed initial public offerings (IPOs) in Europe for the period from 1996 to 2010. It covers two complete stock market cycles and two IPO waves, and provides information on the magnitude of the underpricing as well as on the long-run return and performance behaviour. Additional insights are gained by exploring the relevance of certain market and firm characteristics.
The empirical findings provide significant evidence that venture capital-backed IPOs generate positive returns for a specific time period subsequent to the IPO. In fact, early stage investors such as venture capitalists that are already invested in the company prior to the IPO, profit first from high initial or first day returns (underpricing) and second from high positive returns during the first year after going public. The same holds for an investor who had shares allocated at the time of the IPO. Interestingly, investments in IPOs generate positive returns for investors for nearly three years after going public. An investor who bought shares in the secondary market just following the IPO could also profit from share price increases during the first year of trading. Such an investment even generates positive returns for up to two years before returns become negative.
Overall, this study provides empirical evidence that venture capital-backed initial public offerings in Europe generate positive returns and a positive performance for the 1996 to 2010 period.
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