The contingent value of venture capitalist reputation

摘要

This study explores the signaling and substantive value of high-reputation affiliates to young firms, and the factors that moderate the nature of the value they provide. Specifically, the study examines the extent to which venture capitalist (VC) reputation is related to the first-day valuation and post-IPO operating performance of the firms they take public, and whether the value of a high-reputation VC is contingent on the timing of VC involvement in the portfolio firm, the VC firms' industry-specific experience and their geographic proximity. The authors develop a time-varying, multi-item composite index of VC reputation and use a sample of VC-backed IPOs between 1990 and 2000 to test their hypotheses. The results suggest that early involvement in an IPO firm's development significantly enhances the positive relationship between a VC's reputation and both initial market reactions and post-IPO operating performance. The study also finds that the industry specialization of early-round VCs, regardless of their reputation, is positively related to post-IPO operating performance, and that the relationship is even stronger when the VC has a high reputation and invests in the first round. Finally, while the geographic proximity of VCs to their portfolio firms has no effect on the relationship between their reputation and the firm's post-IPO operating performance, investors nonetheless discount the value of VC reputation when VCs are more geographically distant from their portfolio firm. However, when endogeneity associated with having greater access to high-potential start-ups is controlled for, geographic proximity significantly decreases the relationship between VC reputation and operating performance, but it no longer affects initial market valuation.