Abstract
This paper investigates the valuation of high-growth entrepreneurial firms labeled as unicorns – private venture firms that are valued more than $1 billion – during Initial Public Offering (IPO). We explore unicorn valuation at IPO compared to non-unicorns by expanding the entrepreneurial finance literature and contextualizing unicorn phenomenon into underpricing literature with two dominant theories that compete in this context; information asymmetry and ex- ante uncertainty. Using a unique dataset of 226 IPOs in the US including unicorn firms and controlling for potential sampling bias with an instrumental variable approach, we find that unicorn firms are more underpriced than non-unicorn firms in the IPO market that aligns with ex-ante uncertainty theory but against information asymmetry theory. We also examine three moderating factors that support our finding. This paper contributes to literature on entrepreneurial finance, celebrity firms, and unicorn phenomenon.
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