Do the Individuals Closest to Internet Firms Believe They Are Overvalued?

Abstract

Two explanations are commonly offered for the large number of recent IPOs by Internet firms: that they are rushing to go public when Internet stock prices are irrationally high, and that they are trying to grab market share in an industry with large economies of scale. We examine the actions of Internet firm managers, underwriters and venture capitalists to determine their motives for going public. Mergers and acquisitions provide strong evidence of a rush to grab market share. Evidence that they are trying to sell overpriced stock is much weaker.