The influence of venture capital firms : evidence from Chinese initial public offerings

Few studies have been completed about the performance of venture capital (VC) firms in the Chinese capital markets. I conduct an exploratory study of lead venture capital firms and their influence on the performance of their portfolio companies in Mainland China. I find that VC-backed firms experience a higher level of underpricing compared to non-VC backed ones in the Mainland stock market while the participation of VC firms in general helps to improve the post-IPO performance of their portfolio companies. As for different types of VCs, firms backed by independent VCs perform relatively better than their counterparts in the post-IPO period, but IPOs with local Chinese VCs underperform foreign VC firms in terms of controlling for the level of underpricing. In addition, I find that IPOs listed in the Mainland market experience more underpricing than the IPOs of Chinese companies listed in the US and Hong Kong markets. Contrary to expectations, I find no evidence that VC reputation has an impact on the performance of portfolio companies. Finally, the influence of VCs declines two to three years after the IPO when they seek to exit from their investment.