The influence of initial sponsor backing on post-IPO acquisition activity

We test whether venture capital (VC) or private equity (PE) backing at the time of a firm's IPO leads to different post-IPO acquisition strategies. We find that PE-backed newly public firms engage in almost three times as many acquisitions as VC-backed newly public firms and almost twice as many as non-backed ones. PE-backed firms are also more likely to engage in diversifying acquisitions as proxied by size, while VC-backed firms tend to increase their R&D spending, indicating a preference for organic growth by VC-backed firms. We additionally document significant positive long-run post-IPO stock returns for PE-backed newly public acquirers, but not for VC-backed ones.