Discussion on “Venture Capital Incubation Period, Underpricing, and Firm Performance” An interesting and well-written paper on Venture Capital Incubation Period. [An interesting issue] Prior studies document that industries such as Biotechnology & Medical devices often experience a long incubation period prior to a burst of pro-longed and rapid growth.

Regarding market-to-book ratio market-to-book ratio may be a less than perfect proxy variable The Market Timing Hypothesis “Thus, they are better aware of the opportunity and are able to takes firms public at market peaks, as documented by Lerner (1994).”

In market research papers, Market-to-book ratio serves to proxy research and intangible asset intensity. Market-to-book ratio serves to proxy growth potential. (H1 in this paper) Market-to-book ratio serves to proxy window of opportunities. (H1 in this paper)

2. This study uses industry median market-to-book ratio to measure both the window of opportunities An industry’s/firm’s market-to-book ratio changes over time Results may be sharper if use, e.g., the first difference in market-to-book ratio Also helps to Discriminate amongst alternative explanations

Perhaps some further elaboration on “As incubators,VCs increase the incubation period of firms perceived to be of high risk.” [Lines 6-7 of ABSTRACT] would help. How do we measure the perceived level of risk? Long incubation period due to Morning-After surprise? Perhaps some further elaboration on whether the approximately 0.5-year difference in incubation period between survivors and non- survivors would help.

[Table 7] For studies in this research field, it may help to better control the conservative bias in accounting measures . ROA measure ~ (I) ROA may be greater for firms with more intangible assets. (II) The firms/industries with more intangible assets may be with longer incubation period. An alternative explanation to the results of Table 7: (I) + (II).

ROA measure ~ more mature firms tend to have better accounting performance measures.

I also suggest that the author provide some more discussions of why IPO under-pricing decreases with the length of incubation period The anomaly of IPO under-pricing may be more pronounced when there’s greater uncertainty to the underwriters, … The underwriters, who assume the role of put writers, may be reluctant to set high offering prices for riskier deals.