DRAFT

Ulric B. and Evelyn L. Bray Social Sciences Seminar

Tuesday, September 26, 2017
4:00pm to 5:00pm
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Baxter B125
The Evolution of the Private Equity Market and the Decline in IPOs
Michael Ewens, Associate Professor of Finance and Entrepreneurship, Caltech,

Abstract: Despite the large drop in the number of initial public offerings (IPOs) in the United States, privately-held startups backed by venture capital continue to achieve capital raising, revenue, and employment levels historically available only to their public peers. We show that startups' ability to finance their late-stage growth while remaining private has been facilitated by a marked increase in the supply of private entrepreneurial capital, both from traditional and non-traditional startup investors. Two factors have contributed to this increase: Technological changes that have lowered investor search costs, and regulatory changes that have decreased the frictions faced by startups and their financiers when raising private capital, among them a major securities law passed in 1996 (NSMIA). Our evidence suggests that the lower IPO volume stems from their founders/managers choosing to remain private, rather than a market failure in the going-public process. Consistent with this interpretation, we show that exogenous increases in founder control increase the likelihood that a firm remains private late in its life.

For more information, please contact Sheryl Cobb by phone at 626-395-4220 or by email at sjc@hss.caltech.edu.