Technological Diversification, Cumulativeness and Venture Capital Exit : M&A Versus IPO

Venture capitalists that specialize in providing funds to privately held firms generate their greatest returns from firms that go public. However, we argue that the technology regime of an industry affects the extent of knowledge asymmetries between different types of owners and subsequently the mode of exit for venture capitalists. More specifically, we suggest that the degree of technological diversification and technological cumulativeness of an industry will have a positive effect on the likelihood that a venture capital firm will exit its investment in a technology firm via a merger or an acquisition as opposed to taking it public