The impact of the quality of VC financing and monitoring on the survival of IPO firms

Abstract

PurposeThe purpose of this paper is to analyze the impact of venture capital (VC) involvement on the survival rate of French initial public offerings (IPOs) during the period 1996-2006. The paper examines the link between the survival rates of IPO companies, and several proxies for the quality of venture capitalist financing and monitoring.Design/methodology/approachTo analyze the impact of the involvement of VC on both long and short run post-IPO survival, two methods are used: survival analysis (the Cox proportional hazard), and a logit model.FindingsThis paper shows that the quality of venture capitalist monitoring, measured by the duration of their investment before the IPO, is positively correlated with company survival rates. However, the author does not find the expected result when the author considers the experience of venture capitalists measured by their age.Research limitations/implicationsThe findings are limited to a sample of VC-backed companies that went public.Practical implicationsThe findings have implications for entrepreneurs. When analyzing the advantages and disadvantages linked to the presence of VC firms in the capital of their companies, entrepreneurs should consider that certain types of venture capitalists might be more or less able to be involved in the monitoring and value adding process.Originality/valueTo date, there is no comprehensive study on the French IPO market analyzing both long and short run post-IPO survival of VC-backed companies. This paper fills this gap.