Do venture capitalists improve the operating performance of IPOs?

This paper uses rigorous measures of operating performance and a sample extending into the post 2000 period to reexamine the performance of venture capital (VC) backed initial public offerings (IPOs). We find that the VC backed IPOs underperform non-VC backed IPOs, especially when firms have high excess cash, and propose that the higher excess cash retained in VC backed firms at IPO date may result in wasteful investment. Post-IPO real investment also confirms this notion. Further, our result holds whether or not VCs are on the board after the IPO date. Overall, our study supports the overinvestment hypothesis.