Venture Capitalists in Mature Public Firms

Abstract

Using data on the backgrounds of board members of S&P companies, we show that venture capitalists (VCs) play an important role in mature public firms long after their initial public offering (IPO). Almost one-third of mature public companies have at least one VC director on their board. VC presence on the board is not limited to mature companies that were VC-backed at the time of their IPO – over one-third of mature firms with VC directors were not VC-backed at the time of their IPO. Appointments of VC directors to the board are followed by increases in R&D intensity, innovation output, and greater deal activity with other VC-backed firms. VC director appointments are associated with positive announcement returns and are followed by an improvement in operating performance. Finally, firms experience higher announcement returns from acquisitions of VC-backed targets following the appointment of a VC director to the board. Our results show that in addition to their function as providers of finance, monitoring and advice for small private firms, VCs play a significant role in mature public firms as well. Hence, we illustrate a much broader role for VCs than has been established in the literature.