The impact of bank venture capital on initial public offerings

Studies of the role of venture capital in the IPO process generally assume that all venture capitalists are alike. We relax this assumption and focus on the role of venture capitalists affiliated with either commercial or investment banks. We find that firms backed by these bank venture capitalists experience a lower opportunity cost of going public. This result holds mainly for small issuers, suggesting that banks are superior to traditional venture capitalists in providing certification services to this segment of the market. We also find that bank venture capital-backed firms experience a less negative abnormal return at lockup expiration, which is consistent with the hypothesis that banks are motivated, at least in part, by ‘relationship building’ when providing venture capital funding.