This study quantifies and compares the relative importance of underwriters and VCs for underpricing in initial public offerings (IPOs). A critical aspect of IPO underpricing is the information asymmetry between current owners and potential investors. Existing theory argues that such information asymmetry can be reduced by signaling the value of a venture through means that are considered valid in the perception of IPO investors (e.g., Stuart, Hoang, and Hybels, 1999).

While signals based on the certification of IPOs by investment banks have received substantial attention and empirical analysis, research on the role of venture capitalists (VCs) in this process is only beginning to emerge. Furthermore, there is little research that compares the relative influence of investment banks in alleviating underpricing, to that of VCs.