The emerging public investments in private companies

Abstract

Start-up companies have primarily been financed by venture capitalists but have started to receive increased investments from public investors such as hedge funds, mutual funds and pension funds. In this thesis, we find that companies that receive both venture capital and public investments have a higher probability to undergo an initial public offering or exit through M&A. We find significant differences in the likelihood of exit through IPO, but not when exiting through M&A. To the best of our knowledge, our study is one of the first studies to examine the impact from public investments in private companies and the effect such investments have on the probability of exit. Earlier studies have either focused on traditional risk capitalist, such as VCs and CVCs or the effect public investments have on public companies. Our findings shed light on the increasing investment activities from public investors in private biotech companies and how these investments affect the exit events. Our findings also suggest that VC-backed IPOs have a higher pre-money valuation than both VC and public backed-IPOs.