How Do Corporate Venture Capitalists Create Value for ...

IVC backing dummy, and the reputation of existing IVCs, and measures of participation by various other
market players.. As control variables we employ size (log of total assets), share of firm equity sold in the
IPO, various operating performance characteristics of IPO firms, industry dummies, and year dummies.
We find that the presence of CVC backing an IPO firm increases the valuation of this firm at the
offer price (relative to an industry peer) by 35% on average. Similarly, each additional CVC backing the
entrepreneurial firm going public causes on average 13% increase in valuation. Finally, the backing by an
additional CVC with its corporate parent in the same Fama-French industry as the IPO firm increases this
firms’ valuation by roughly 11%.
Our univariate and multivariate analysis of IPO firms’ valuation at both offer price and the secondary
market price suggest that corporate venture capitalists are able to credibly convey the information about
future prospect of the IPO firms backed by them to both IPO and secondary market participants. Further,
the higher valuation assigned by the IPO market to CVC backed firms may reflects the higher value of
their growth options relative to that of IVCs backed IPO firms.
8.4 Long-Run Post-IPO Stock Returns of CVC Backed and IVC Backed Firms
The higher valuation awarded to CVC backed firms relative to IVC backed firms at the IPO and
secondary market may arise from temporary misvaluation in the equity market rather than from the
superior ability of CVCs to communicate the true value of firms backed by them to various equity market
participants. In the former scenario, however, one would expect CVC backed firms to underperform IVC
backed firms in terms of long-run stock returns, as the temporary misevaluations are corrected over time.
We therefore compare the five year stock return performance of CVC backed and IVC backed firms to
rule out the misvaluation scenario.
We compare the intercepts of the Fama and French (1993) three-factor model based on the calendar-
time monthly portfolio returns of CVC backed and IVC backed IPO firms. We construct the calendar-
time portfolio returns by averaging monthly returns of firms that went public within 60 month of the
return date. Table 8 present the results of our analysis. Following earlier stock return studies, along with
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