Trade Sale versus IPO as Exit Strategy - An Empirical Analysis of European and US VC Backed Biotechnology Companies
Austin Journal of Business Administration and Management
This paper studies the influence factors that characterize a trade sale versus an IPO exit strategy of VC-backed biotechnology companies. Using a dataset of 142 European and US privately held companies, exiting between 2005 and the second quarter of 2014, this paper addresses VC investment structure variables as well as firm- and product-specific variables to examine the decision of VCs to either use the trade sale or the IPO strategy. It was found that the IPO exit strategy calls for higher investments, is financed by more investors, requires more financing rounds, and takes longer for VCs to exit. An interdependency of these four variables is shown. Additionally, firms with pre-clinical products show higher probabilities for trade sale exits, whereas firms with marketed products and/or revenues are more likely to go public. Furthermore, the size of a firm is positively related to the probability of an IPO exit. Finally, firms whose lead product belongs to the field of oncology or is biologic in nature, and/or firms with technology platforms do not show a higher probability to exit via one of the two exit strategies considered.
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SOF - System-wide Risk in the Financial System