VCs, PIPEs and the Martini Model

From a new research paper on whether venture capital investors doing PIPEs (private investments in public equity — essentially a VC buying a slug of public equity for a below-market price) add value to the company, as measured by the subsequent share price:

short-run market reaction to the VC-led PIPE announcement is significantly
positive, but decreases in the number of VC board seats acquired. Although
firms’ operating performances do not improve significantly after the PIPE, firms
that issue PIPEs to VCs experience a positive abnormal return over the year
following the PIPE announcement.

Lovely. In other words, the price goes up, but the company doesn’t do any better — money for nothing and your chicks for free, to borrow from Dire Straits.

And the other finding, that price performance decreases with the number of venture investors on the board, merely confirms the Martini Model of VC boards [thanks David]:

Venture investors on company boards are like martinis: One is good, two is great, and three is a disaster.