Exit Early

From http://blogs.wsj.com/venturecapital/2009/07/23/angels-more-in-tune-with-ipo-companies-than-vcs-study-says/

An academic study published in 2004 said initial public offerings are more often underpriced when a company is venture-backed than when it is not. This means the company pockets less from the IPO than it might have had the offering been priced closer to what the market would bear…

Now, researchers at the University of New Hampshire’s Center for Venture Research have refined the thesis to suggest that underpricing is less likely if a company is backed by wealthy individuals, called angels. This is because the angels are more likely than VCs to sell shares as part of the IPO. Venture investors generally claim any market gains when they sell or distribute their stakes after the six-month lockup.

“While venture investors are prone to underprice IPO firms, reducing the proceeds from the offering, angel investors have incentives more aligned with non-venture capital pre-IPO shareholders,” says the working paper, authored by UNH Professors William Johnson and Jeffrey Sohl, the venture center’s director.

The full UNH working paper is available here

Assuming founders, voluntarily or involuntarily, are subject to the same lockup as VCs, then this doesn’t ultimately affect their proceeds. It does beg the question of what VCs stand to gain by a post IPO pop. More bragging rights, less effort needed to subscribe the offering, better relationships with investment bankers, etc.