The impact of corporate venture capital on startup value: Evidence from IPOs 2001-2014
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School of Business | Master's thesis
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AbstractOBJECTIVES OF THE STUDY Entrepreneurial activity and availability of venture capital have reached the highest rate in the US since the IT bubble in the beginning of the 21st century. Along with traditional venture capital firms, startups are getting ever more attention from established companies that shows in number of newly formed corporate investment arms, corporate venture capitalists. Corporations' entry in the venture capital field has shifted the focus of venture capital from sole financial perspective to also strategic objectives. The aim of this study is to investigate the impact of corporate venture capital on startup valuation by comparing the value-added of corporate venture capitalists to that of traditional venture capital firms. DATA AND METHODOLOGY The research is descriptive in nature and it employs quantitative methods for explaining the empirical results. My data sample consists of 400 companies that received venture capital financing and underwent IPOs in the US in 2001-2014. The empirical part of this study analyses the effect of corporate venture capital on company market value by using OLS regression. The focus of the analysis is only on short-term post-IPO market values as the effect of these VC entities' is likely to become diluted after the IPO. FINDINGS OF THE STUDY My findings show that the market valuations of companies that received corporate venture capital financing are similar to companies that didn't have investments from corporations. Thereby my results suggest that corporate venture capitalists do not provide incremental value-added to that of traditional venture capital firms. Instead, the empirical findings indicate that company market values are affected by sales, total assets, company age and general market conditions. Consistently with general IPO underpricing, my results suggest that all venture capital-backed IPO are underpriced as the average first-day closing price was almost 20% higher than the offer price.
corporate venture capital, venture capital, VC, valuation, IPO, startup