Leaving money on the table in venture-backed biotechnology IPOs


  • Hans Lennart Jeppsson University of Gothenburg




Initial public offerings, IPOs, first-day return, underpricing, venture capital, biotechnology


This study analyzes first-day returns (underpricing) for venture-backed biotechnology IPOs during 1980 through 2015. The result of this study shows that the average first-day return was 17.5 percent, which translates into an amount equal to $6.3 billion that was left on the table - nearly triple the $2.2 billion in underwriter fees. The study provides different theoretical explanations to the underpricing phenomenon and discusses why venture capitalists may be willing to accept leaving money on the table. The analysis also shows that IPOs with a large degree of underpricing are concentrated in hot IPO markets such as during 1999-2000 and more recently in the years 2014-2015. Notable, eight of the thirteen venture-backed biotechnology IPOs with the largest amount of money left on the table in the history of biotechnology went public during 2014-2015. From an investor perspective, if the degree of underpricing is an indicator of a pricing bubble, as was the case in 1999-2000, rational investors should at least be a little bit concerned about the state of the biotechnology equity market. From a management and venture capitalist perspective, issuing firms should at least consider using auctions as opposed to book-building to price and allocate IPOs to decrease the degree of underpricing and thereby the amount of money left on the table.

Author Biography

Hans Lennart Jeppsson, University of Gothenburg

Hans L. Jeppsson, Ph.D., is the founder and managing partner of BioValuation Advisors, a research-driven boutique advisory firm specialized in asset valuation in the life sciences industry. Hans is also an Assistant Professor at the Department of Business Administration at the University of Gothenburg, Sweden. He was previously a biotechnology analyst at Danske Bank and prior to that held several positions within preclinical R&D at AstraZeneca.


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