What’s in It for Me? Reciprocal Exchanges between Underwriters and Venture Capitalists

Abstract

In this article, we examine the impact of repeat interactions between VCs and underwriters. Past research has suggested that such interactions build trust and may contribute to more equitable treatment of issuing firms. We adopt an alternative perspective and suggest that these repeat interactions are characterized by reciprocal exchanges facilitated by opportunistic behavior from the VC. Our analysis demonstrates that VCs and underwriters interact in order to appropriate greater value from the IPO. This article provides a more complete understanding of repeat interactions between the VC and the underwriter by identifying characteristics of the relationship that have an impact on the value of the IPO.