Grandstanding in the UK Venture Capital Industry

Abstract

This paper speaks to the hypothesis that young venture capital firms take companies public earlier than older venture firms in order to establish a reputation and successfully raise capital for new funds. Consistent with the extant literature, evidence from a sample of 85 IPOs on the LSE over the period 1992-99 suggests that companies backed by young venture firms are indeed younger at IPO than those backed by more established firms, and young venture firms have shorter board representation. There is little evidence to suggest greater underpricing for young VCF investments, nor do young VCFs hold relatively small equity stakes. Older VCFs raise larger follow on funds, but there is no significant differential in timing of those funds. Overall, this study suggests that there is insufficient evidence as yet to unambiguously support the significance of grandstanding as a feature of the UK venture capital industry.