Open Access Open Access  Restricted Access Subscription or Fee Access

Leaving money on the table in venture-backed biotechnology IPOs

Hans Lennart Jeppsson


This study analyzes first-day returns (underpricing) for venture-backed biotechnology IPOs during 1980 through 2015. The result of this study shows that the average first-day return was 17.5 percent, which translates into an amount equal to $6.3 billion that was left on the table - nearly triple the $2.2 billion in underwriter fees. The study provides different theoretical explanations to the underpricing phenomenon and discusses why venture capitalists may be willing to accept leaving money on the table. The analysis also shows that IPOs with a large degree of underpricing are concentrated in hot IPO markets such as during 1999-2000 and more recently in the years 2014-2015. Notable, eight of the thirteen venture-backed biotechnology IPOs with the largest amount of money left on the table in the history of biotechnology went public during 2014-2015. From an investor perspective, if the degree of underpricing is an indicator of a pricing bubble, as was the case in 1999-2000, rational investors should at least be a little bit concerned about the state of the biotechnology equity market. From a management and venture capitalist perspective, issuing firms should at least consider using auctions as opposed to book-building to price and allocate IPOs to decrease the degree of underpricing and thereby the amount of money left on the table.


Initial public offerings; IPOs; first-day return; underpricing; venture capital; biotechnology

Full Text:



Papadopoulos, S. (2001) Evolving paradigms in biotech IPO valuations. Nature Biotechnology 19: BE18-BE19.

Booth, B. (2006) Early-stage returns? Nature Biotechnology 24(11): 1335-1340.

Booth, B. (2009) Beyond the biotech IPO: A brave new world. Nature Biotechnology 27(8): 705-709.

Booth, B. (2016) This time may be different. Nature Biotechnology 34(1): 25-30.

Grimaldi, A. (2014) From the analyst's couch: The outlook for biotech exits. Nature Biotechnology 32(3): 227-228.

Burrill, S. (2013) Improving IPO market still not an exit path. Journal of Commercial Biotechnology 19(1): 53-54.

Booth, J. and Smith, R. (1986) Capital raising, underwriting and the certification hypothesis. Journal of Financial Economics 15(1): 261-281.

Rock, K. (1986) Why new issues are underpriced. Journal of Financial Economics 15(1): 187-212.

Akerlof, G. (1970). The market for" lemons": Quality uncertainty and the market mechanism. The Quarterly Journal of Economics 84(3): 488-500.

Hanley, K. (1993) The underpricing of initial public offerings and the partial adjustment phenomenon. Journal of Financial Economics 34(2): 231-250.

Kahneman, D. and Tversky, A. (1979) Prospect theory: An analysis of decision under risk. Econometrica: Journal of the Econometric Society 47(2): 263-291.

Loughran, T. and Ritter, J. (2002) Why don't issuers get upset about leaving money on the table in IPOs? Review of Financial Studies 15(2): 413-444.

Gompers, P. (1996) Grandstanding in the venture capital industry. Journal of Financial Economics 42(1): 133-156.

Greene, J., Purcell, D., Edelman, B., Giordano, D., Ruback, R., Mihas, D., et al. (2010) The role of private equity in life sciences. Journal of Applied Corporate Finance 22(2): 8-35.

Timmerman, L. (2011) Biotech VCs have a problem, and it will get worse before it gets better. Xconomy, 24 October,, accessed 16 August 2016.

Lerner, J. (1994) Venture capitalists and the decision to go public. Journal of Financial Economics 35(3): 293-316.

Ball, E., Chiu, H. and Smith, R. (2011) Can VCs time the market? An analysis of exit choice for venture-backed firms. Review of Financial Studies 24(9): 3105-3138.

Krigman, L, Shaw, W. and Womack, K. (2001) Why do firms switch underwriters? Journal of Financial Economics 60(2): 245-284.

Derrien, F. and Womack, K. (2003) Auctions vs. bookbuilding and the control of underpricing in hot IPO markets. Review of Financial Studies 16(1): 31-61.



  • There are currently no refbacks.

Copyright © thinkBiotech LLC