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NewsMaterial3 min readDisconfirmAI Editorial

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.

2026-11-03 00:43 GMT+8

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.

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This vulnerability is not uniformly distributed. Smaller VCs and funds nearing their exit phase suffer the most significant shocks. Large institutions possess broader networks, stronger reputations, and more alternatives; smaller VCs may struggle to find new trusted partners, while managers near the end of a fund’s life lack the time to wait for relationship rebuilding. Additionally, the authors note that underwriters intervene in portfolio companies as deal facilitators or late-stage investors in approximately 15% of cases before the IPO, indicating that the role of relationships extends far beyond the moment of listing.

The practical implication for VC due diligence is that historical returns may not fully reflect the importance or fragility of exit infrastructure. A manager’s strong performance may partly rely on relationships with a specific underwriter maintained by particular bankers. If these bankers leave or their institution is merged, future exit capabilities may decline significantly. When evaluating managers, dimensions worth investigating include the concentration of underwriter relationships, personnel stability, and the manager’s track record in handling changes among key service providers.

The strongest counterargument to this study rests on the parallel trends assumption. Difference-in-differences methods require that, had no underwriter mergers or closures occurred, the exit trends of affected and unaffected VCs would have remained consistent. If VCs that happened to partner with a merging underwriter were systematically different in quality or scale, the estimated effect might mix in selection bias. The authors use mergers and closures as 'plausibly exogenous' shocks to construct identification, but this assumption itself cannot be fully verified.

Nevertheless, this study establishes a previously underestimated fact: a VC’s exit capability is a form of relational capital embedded in specific individuals, which can be destroyed by exogenous events, and whose loss directly reflects in LP returns. For institutions and individuals allocating private market capital, questions such as 'who does this manager know, how deep are these relationships, and are the key people still there,' are just as important to due diligence as 'what projects did this manager select.'

Sources

  • alphaarchitect.com↗
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