Investor Exit Strategies and Entrepreneurial Firm Growth: Phase One

Committee Chair: Timothy F. Bresnahan, Department of Economics, Stanford University

2001, the year of the Internet crash, marked an abrupt change in private equity markets involving young, entrepreneurial firms. Along with a sharp drop in venture capital placements, the number of U.S. initial public offerings (IPOs) plunged three-quarters, to 81 from 382 the previous year.

IPO activity has only partially recovered and much of it has gravitated to foreign exchanges, especially in London but also in Singapore and elsewhere. Meanwhile, the number of investor exits by acquisition has grown correspondingly. Venture investors now routinely expect to sell out to established firms rather than to take their companies public.

A STEP Board committee chaired by Stanford economist and STEP Board member, Timothy Bresnahan is undertaking a phased study of investor exits from successful entrepreneurial technology-based firms, focusing on three principal questions: What are the determinants of entrepreneurs' decisions to take firms public or to pursue acquisition by established firms? What are the consequences of those outcomes of innovation, employment, and the productivity of the economy? And what public policies influence those outcomes?

In Phase One, sponsored by the Ewing Marion Kauffman Foundation, the committee held a public workshop to review the existing literature, define an agenda for further research, and assess the feasibility of carrying out this research in light of available or collectable data. A workshop summary is being prepared and will be released later this year.