Technological Disruptiveness and the Evolution of IPOs and Sell-Outs

Abstract

We show that the recent decline in IPOs on U.S. markets is related to changes in the technological disruptiveness of startups, which we measure using textual analysis of patents from 1930 to 2010. We focus on VC-backed startups and show that those with ex-ante disruptive technologies are more likely to exit via IPO and less likely to exit via sell-out. This is consistent with IPOs being favored by rms with the potential to carve out independent market positions with strong defenses against rivals. We document an economy-wide trend of declining technological disruptiveness since World War II that accelerated since the late 1990s. This trend predicts fewer IPOs and more sell-outs, and we nd that roughly 20% of the recent dearth of IPOs, and 49% of the surge in sell-outs, can be attributed to changes in firms'technological characteristics.