Leaving money on the table in venture-backed biotechnology IPOs
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Initial public offerings
first-day return
venture capital


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.

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