Open Access Open Access  Restricted Access Subscription or Fee Access

Biotech venture capital investments in public equities and performance

Hans Lennart Jeppsson

Abstract


This study examines a large sample of venture investments in public equities (VIPEs) in the biotechnology and pharmaceutical industry over the period 1995-2014. The results of the study are threefold. First, and contrary to widely held beliefs, there has been no significant increase in the number of VIPEs over time. In fact, both in terms of dollar amount as well as the number of VIPE transactions have actually went down post the record year in 2009. Second, this study documents that returns profiles from the public venture capital market share many similarities to the returns in the private VC market: few big winners, but overall a high loss rate. Approximately seven investments out of ten in public firms generate a loss. Third, the analysis of private investments in public equities shows that venture capitalists outperform other competitors, such as hedge funds and mutual funds. From a management perspective, venture investments in public equity provide several benefits including providing an additional source of potential funding, aligning the investment horizon of venture capitalists with other long-term investors, certifying the quality of the firm and contributing to the long-term success.


Keywords


Venture capital; venture investments in public equity; VIPE; biotechnology

Full Text:

PDF PDF

References


Hellmann, T., and Puri, M. (2002) Venture capital and the professionalization of startâ€up firms: Empirical evidence. Journal of Finance 57(1): 169-197.

Brav, A., and Gompers, P. (1996) Myth or reality? The long-run underperformance of initial public offerings: Evidence from venture-and nonventure capital-backed companies. Journal of Finance 52(5): 1791-1821.

Harris, R., Jenkinson, T. and Kaplan, S. (2014) Private equity performance: What do we know? Journal of Finance 69(5): 1851-1882.

Mitchell, P. (2009) Venture capital shifts strategies, startups suffer. Nature Biotechnology 27(2): 103-104.

Hansen, S. (2014) Case Study: Algeta's lessons. Biocentury 22(6): A11-A13.

Mitchell, P. (2010) Microcap public biotechs access new pool of VC funding. Nature Biotechnology 28(7): 637-8.

Edelson, S. and Ward, M. (2009) Weathering (nuclear) winter. Biocentury 17(1): A1-A10.

Chaplinsky, S. And Haushalter, D. (2012) VIPE financing: Venture (capital) investments in public equity. In: D. Cumming (editor) Oxford Handbook of Venture Capital. New York: Oxford University Press, pp. 246-273.

Flanagan, M. (2009) Arrested by warrants. Biocentury 17(13): A1-A4.

Kaplan, S. And Schoar, A. (2005) Private equity performance: Returns, persistence, and capital flows. Journal of Finance 60(4): 1791-1823.

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.

Booth, B. and Salehizadeh, B. (2011) In defense of life sciences venture investing. Nature Biotechnology 29(7): 579-583.

Pastor, L. and Stambaugh, R. (2003) Liquidity risk and expected stock returns. Journal of Political Economy 111(3): 642-685.

Dai, N. (2007) Does investor identity matter? An empirical examination of investments by venture capital funds and hedge funds in PIPEs. Journal of Corporate Finance 13(4): 538-563.

Brav, A., Geczy, C. and Gompers, P. (2000) Is the abnormal return following equity issuances anomalous? Journal of Financial Economics 56(2): 209-249.

Fama, E. and French, K. (1993) Common risk factors in the returns on stocks and bonds. Journal of Financial Economics 33(1): 3-56.

Carhart, M. (1997) On persistence in mutual fund performance. Journal of Finance 52(1): 57-82.




DOI: http://dx.doi.org/10.5912/jcb758

Refbacks

  • There are currently no refbacks.




Copyright © thinkBiotech LLC