UK IPO underpricing and venture capitalists

We analyze the nature and causes of short-run underpricing for a unique sample of 591 Initial Public Offers (IPOs) issued on the London Stock Exchange for the period 1985–2003. We find significant differences between the 1998–2000 bubble years and the rest of the sample. Venture capitalists and reputable underwriters played a certification role in the latter period but not during the bubble years. These years featured significant increases in underpricing, money left on the table, and a decline in operating quality. The combination of venture capitalists and prestigious underwriters was increasingly associated with the highest underpricing witnessed during 1998–2000, which provides indirect support for the spinning hypothesis.