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Venture Capitalists and Closely Held IPOs: Lessons for Family-Controlled Firms

Cox Family Enterprise Center at the Michael J. Coles College of Business at Kennesaw State University, Kennesaw, GA

Daniel L. McConaughy

Department of Finance, Real Estate, CSUN Family Business Center at California State University Northridge

This study examines how the presence of venture capitalists (VCs) in closely held IPOs relates to their performance. It also identifies other factors that are related to the performance of closely held IPOs. Closely held firms in this study had an average of 88% insider ownership before the IPO. In general, we find that closely held IPOs benefit from associations with VCs. This finding suggests that VCs' outside expertise and connections are valuable assets. Because it takes time for VCs to effect changes and because beneficial changes generally occur gradually, firms contemplating IPOs must plan well in advance to maximize firm value. Family-controlled firms contemplating growth or liquidity options through the IPO, VCs, or other outside capital should consider the findings of this study because it identifies factors that are associated with more successful IPO outcomes.

Family Business Review, Vol. 14, No. 4, 295-311 (2001)
DOI: 10.1111/j.1741-6248.2001.00295.x


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