Welcome to Revise and Resubmit, the podcast where we explore groundbreaking research in business, economics, and entrepreneurship, straight from the most prestigious journals in the world. Today, we’re taking you into the fast-paced world of venture capital and IPOs with a paper that delves into a critical question: When should venture capital firms exit after a venture goes public?
Our featured article, titled 'Venture Capital Exit After Venture IPO', is authored by Yong Li, Tailan Chi, Sai Lan, and Qing Wang. Published on July 16, 2024, in the Strategic Entrepreneurship Journal, this study is part of the FT50 list, placing it among the world’s top 50 business journals, as ranked by the Financial Times. And it’s no wonder—this journal, published by the Strategic Management Society and Wiley, is home to some of the most influential research in the entrepreneurial ecosystem.
In this article, the authors investigate a key decision venture capital firms face after an IPO—whether to exit and cash out, or to retain equity and ride the wave of potential future success. The study introduces the concept of equity retention as holding an 'exchange option,' which allows VCs to leverage their own private information and benefit from the venture's upside potential that the market might not yet fully recognize. The authors find that uncertainty in the venture’s industry, coupled with private positive information like patent applications, can make VCs more likely to delay their exit, even after the initial IPO lockup period has expired.
We’d like to extend our thanks to Yong Li, Tailan Chi, Sai Lan, and Qing Wang for their insightful research, and to the Strategic Management Society, and Wiley for publishing this important work in such a highly respected journal.
So, the big question—how do venture capitalists know when to cash out or stay in the game? Let’s find out.
Reference
Li, Y., Chi, T., Lan, S., & Wang, Q. (2024). Venture capital exit after venture IPO. Strategic Entrepreneurship Journal. https://doi.org/10.1002/sej.1515
