Substance, symbolism and the "signal strength" of venture capitalist prestige

This study explores the symbolic and substantive benefits of VC prestige for firms that have recently completed initial public offerings (IPOs). We consider the extent to which the prestige of a VC firm influences the first-day and long-term performance of the firms they take public, whether the level and timing of the VC firms' involvement in the portfolio firm results in substantive post-IPO performance differences, and whether VC firms' industry-specific experience and geographic proximity moderate these effects. We develop a multi-dimensional measure of VC prestige and use a sample of over 600 VC- backed IPOs conducted between 1990 and 2000 to test our hypotheses. The results of our analysis suggest that VCs provide both substantive and symbolic benefits, especially those VCs that become involved early in the IPO firm's development. We also find that the industry experience of VCs, but not their geographic proximity, enhances the firm's post-IPO operating performance, and that this potential is recognized by investors at the time of the IPO.