Venture Capital Ownership and Contracting During the Brazilian IPO Boom

Abstract

The Brazilian capital markets have recently gone through an Initial Public Offering (IPO) boom in the Sao Paulo Stock Exchange (BM&FBovespa). This paper discusses the involvement of the venture capital (VC) industry in this phenomenon, based on empirical evidence of VC ownership and VC contracting at the time of the IPO boom. This paper builds upon this empirical evidence to test a number of theories that have emerged recently to explain characteristics of VC’s investments and exit strategies. We analyze in which listing segments the IPOs of VC and non-VC backed firms were conducted. We compare the ownership structures of VC backed and non-VC backed companies listed in the BM&FBovespa’s IPO wave. We then analyze changes in the ownership structures of VC backed companies in the pre-IPO and post-IPO periods. We test whether companies with VC participation adopt a more dispersed ownership structure ex-post the IPO period than companies that do not have present these investors. We then access whether VCs exit the companies during the IPO. We additionally explore the characteristics of VC private contracting. We verify whether VCs have a disproportional board representation in relation to their capital investment. We also collect information on the veto rights that VCs may have on corporate decisions.