Current Research

Michael Ewens Research: The Impact of a Declining IPO Market on Venture Capital

One area of research is the impact of the changing initial public offering (IPO) markets on venture capital investments and, consequently, the impact on entrepreneurship, innovation and employment. The last decade has seen a large drop in the number of IPOs in the United States. According to Professor Jay Ritter at the University of Florida, an annual average of 310 operating companies went public in the United States from 1980-2000, but the annual average of IPOs in the U.S. between 2001-12 was only 99 . This trend is alarming since it is conventional wisdom that companies going public seek funds to grow, innovate, and further create jobs.

Exits are the mechanisms by which venture capitalists (VCs) give money back to their investors. That is, most VCs will only make investments in companies if they can foresee a path to exiting (via an initial public offering (IPO) or acquisition), with proceeds of the exits returning to the VCs and their investors. Thus, there are very important links between VC investments, the IPO markets, innovation and U.S. employment. There have been attempts to understand these relationships, but the PCRI’s novel database will allow for groundbreaking research into these issues with previously unavailable data. Professor Michael Ewens at the Tepper School of Business at Carnegie Mellon will use the PCRI database to understand and quantify the relationship between the declining IPO market and the type of venture capital investments that are being made. In particular, because it has been shown that corporations use acquisitions as substitutes for internal R&D, Professor Ewens will look at whether the current state of the markets has had an impact on innovation decisions within a corporation.

1 Jay R. Ritter, “Re-Energizing the IPO Market” (2012), to be published in Restructuring to Speed Economic Recovery, edited by Martin Bailey and Richard Herring, forthcoming Brookings Press, 2013.

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