DP4672 Can Venture Capital Funds Pick Winners? Evidence from Pre-IPO Survival Rates and Post-IPO Performance

Author(s): Hedva Ber, Yishay Yafeh
Publication Date: October 2004
Keyword(s): IPO, long-run performance, survival rate, venture capital
JEL(s): G20, G30
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=4672

This Paper evaluates the ability of venture capital funds to identify and bring to market successful high-tech Israeli companies during the period 1991 to 2000. Using a newly constructed and highly detailed database we find that: (1) The probability of survival until the IPO stage is higher for venture-backed companies. (2) According to several different measures, conditional on making an IPO, the post-listing performance of venture-backed companies is not statistically different from that of non-venture companies throughout the 1990s. We interpret this as evidence that an important contribution of the venture capital industry may be in increasing the survival rates of young technology-intensive firms, rather than in identifying high performers.