This paper examines whether merger and acquisition (M&A) exits have the same effect on venture capital (VC) reputation than initial public offering (IPO) exits? Using a large sample of U.S. IPOs and M&As for the period 1996–2015, we find that M&A exit strategy has the same importance as IPO exit strategy in explaining the incentives of young venture capital firms to grandstand. There is, however, no evidence that young VC firms exit from their portfolio companies closer to the next follow-on fund than older VCs. In addition, our results show that to build their reputation, young VC firms are willing to accept a lower premium in the case of M&A exits and to bear the cost of higher underpricing in the case of IPO exits. We also find that the presence of reputed VC affects significantly the probability of an IPO exit over an acquisition exit.

This study investigates why newly listed firms become M&A targets shortly after their initial public offering (IPOs) from the perspective of product innovation. We find strong empirical evidence that IPOs with less established trademarks increase the likelihood of becoming IPO targets. We also find that the negative relation between established trademarks and the likelihood of becoming IPO targets is more pronounced in highly competitive industries and is primarily driven by the M&A supply side. IPOs with more established trademarks can fend themselves against the product market race as independent firms. They can meanwhile realize superior post-IPO financial as well as innovation performance. To acquire such firms, acquirers need to offer substantially higher takeover premiums. However, some empirical evidence suggests that less product innovation-intensive IPOs tend to deliberately seek potential acquirers to support their product market competing position and therefore are more likely to initiate an M&A deal shortly after going public.