VC Exit Capability Depends on Specific Bankers, Not Institutional Brand: Broken Underwriter Relationships Reduce IPO Exits by 9.5%
Tuft and Yimfor’s study, published in the Review of Finance, uses underwriter mergers and closures as exogenous shocks to find that venture capital firms lose approximately 9.5% in IPO exits and see fund return multiples drop by about 7.8% after losing underwriter relationships. The value of these relationships is embedded in specific individuals rather than institutional names—higher employee turnover exacerbates the impact. This provides a new dimension for VC due diligence beyond historical returns.
Whether a venture capital (VC) fund generates profits is typically thought to depend on two things: the ability to select good companies and the ability to help those companies grow. Tuft and Yimfor, in their 2026 study published in the Review of Finance, propose a third factor: the ability to take companies public. More specifically, this depends on the relationships maintained by specific individuals between VCs and underwriters.
The core finding of the study is that when an existing relationship between a VC and an investment bank underwriter is severed due to a merger or closure, the VC’s IPO exit rate drops by approximately 9.5%, and fund return multiples decline by about 7.8%. These figures come from a difference-in-differences analysis comparing the performance of affected VCs with those retaining their underwriter relationships before and after the shock.
The key to the identification strategy lies in exogeneity. Tuft and Yimfor use underwriter mergers and closures as exogenous shocks to existing business relationships; these events are driven by consolidation activities within the banking industry itself, not by choices made by VCs. The authors compare affected VCs with those retaining their underwriting connections, observing changes in exit performance before and after the event, thereby providing causal evidence rather than merely correlational data.
What truly changes the understanding is the mechanism analysis. The authors find that when mergers lead to high employee turnover, the damage to a VC’s exit capability from broken relationships is more severe; when the original team remains post-merger, the damage is smaller. This implies that the valuable asset is not the institutional label itself, but the trust, familiarity, and tacit knowledge accumulated through repeated cooperation with specific individuals. The authors also examined alternative explanations such as underwriter industry specialization, finding that these factors could not fully explain the results; the evidence points to relationship-specific human capital as a critical determinant of access to public markets.