Greenhorns, Yankees, and Cosmopolitans: Venture Capital, IPOs, Foreign Firms, and U.S. Markets
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Description
What is the connection between a venture capital industry, a well-developed stock market, and a nation’s securities regulation and corporate law? Bernie Black and Ron Gilson, in a comparative look at the USA, Germany, and Japan, observe that the USA has both an active venture capital industry and a well-developed stock market, while Germany and Japan have neither. This, they suggest, is far from accidental. Rather, they argue, ‘venture capital can flourish especially—and perhaps only—if the venture capitalist can exit from a successful portfolio company through an initial public offering (IPO), which requires an active stock market’. Israel provides an important and revealing case study for this theory, because Israel has an extremely active venture capital industry but a relatively undeveloped local stock market, at least for IPOs. Over the last decades, two exit options for Israeli venture capital have developed: IPOs on the NASDAQ and acquisition by foreign firms. In this chapter, I use the Israeli experience to gain insight into the connection between national venture capital and national stock markets in a globalizing economy. The ability of Israeli companies to go public on the NASDAQ is a striking and important phenomenon that has important implications in a number of areas. First, as mentioned, it casts light on the issue flagged by Black and Gilson, namely the link between venture capital and domestic capital markets. Second, it provides insight into the structure of global capital markets and, in particular, the relatively small magnitude of cross-border transaction costs. The Israeli case demonstrated that those costs are not so high that firms cannot tap foreign capital markets routinely, and even change their ‘citizenship’, without changing their operations. Third, it demonstrates the inevitability of interjurisdictional choice for corporate charters at the start-up margin. Finally, a striking conclusion of this case study is that Israeli firms can and do ‘pass’ as US firms. If Israeli firms can do so, so can German and Japanese firms, once they learn how.
Source Publication
Venture Capital Contracting and the Valuation of High Technology Firms
Source Editors/Authors
Joseph A. McCahery, Luc Renneboog
Publication Date
2003
Recommended Citation
Rock, Edward B., "Greenhorns, Yankees, and Cosmopolitans: Venture Capital, IPOs, Foreign Firms, and U.S. Markets" (2003). Faculty Chapters. 1908.
https://gretchen.law.nyu.edu/fac-chapt/1908
