CLASHING INTERESTS IN THE IPO PROCESS: CONTINGENCIES OF SIGNALING WITH REPUTABLE VC TIES

In this study I look at how inter-organizational ties with reputable venture capital (VC) firms affect the valuations that entrepreneurial ventures receive from public investors at initial public offerings (IPOs). I propose that the effect of signaling is attenuated when there is misalignement of strategic interests between a venture and its VC investors. I consider the level of shares sold by insiders at the IPO and the enforcement of demand registration rights as elements indicating misalignement of interests. Drawing on a sample of 86 IPOs in the main U.S. stock exchanges completed by entrepreneurial ventures in the Clean Technology sector, I find that, on average, affiliation with reputable VCs elicits a positive response by public investors. However, public markets react less favorably to reputable ties when insiders sell large amount of their shares at the IPO or when VCs force the offer of their shares by the enforcement of demand registration rights.