N. 52 Studi e Ricerche  (Dicembre 2002)
JEL Classifications: G15, G24, G32, G38.

N. Susi
CONSOB, Divisione Mercati e Consulenza Economica
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Since 1996, in Europe new market venues have added to existing stock exchanges. The so-called "new markets", focused on innovative companies in high-growth industries, had a remarkable success in terms of number of IPOs and funds raised: more than 900 companies went public from 1996 to 2001, and total funds raised amounted to about 32 billion euro. However, due to the unfavourable evolution of financial markets over the last one and half year, most of the gains accumulated by these stock exchanges, since their inception, have been "burnt". As supported by the European Commission in many documents about risk capital, these markets could help the development of high growth sectors, due to complementarities between stock exchanges and venture capital in providing additional funds to innovative firms. The main object of this paper is therefore to study the role of venture capital and the characteristics of listed firms, particularly in two new markets: the Neuer Markt (Germany) and the Nuovo Mercato (Italy).

A first analysis of data shows a strong correlation between the size of the venture capital industry and that of national stock exchanges (European and U.S.). Moreover, European VC industry remarkably grew after the inception of the new markets, but this growth was lower than that of U.S. venture capital industry in the same period. With regard to Germany and Italy, until 2001 VC investments and funds raised have been strongly accelerated by the creation of the Neuer Markt and the Nuovo Mercato. Accounting data of new listed firms in the two Stock Exhanges show a remarkable growth of sales, especially in the year of the IPO. These companies go public essentially to collect new funds (the share of the IPO coming from the increase of capital is very high) and they "use" the IPO to "reequilibrate" their financial structure and increase their financial debt after the quotation. Institutional investors in risk capital own stakes in a high share of companies analysed (about 51% in the Neuer Markt and 44% in the Nuovo Mercato) and, like other shareholders, they keep most of their ownership after the offering. Companies which are financed by venture capitalists, especially in Germany, seem to be bigger and more profitable than other companies, while no significant differences appear as to the rate of growth and the pace of investments.       

Many conclusions can be drawn from this evidence: first, the aforementioned complementarity hypothesis seems plausible in the experience of both Italian and German VC markets; second, innovative companies have largely resorted to IPOs to finance their growth; finally, venture capital, by providing funds in the earlier phases of the life of companies, seems to help them in "maturing" before entering the stock exchange.

This paper is a revised version of the final thesis of the author at the Master in Finance of London Business School (July 2001). The author would like to thank Marcello Bianchi, Nicola Pellegrini, Paolo Volpin and participants to the Consob seminar on "New Markets" for the very helpful comments and suggestions. Opinions expressed in this paper are exclusively those of the author and do not necessarily reflect the view of Consob.