Problems of the IPO market and divestment of private equity funds

Purpose: Initial Public Offering (IPO) offers on the stock markets are well documented in literature.IPOs emerge when companies decide to enter the equity market by selling their stock to the public.Studies on the effectiveness of IPOs of companies powered by Venture Capital and Private Equity funds suggest clear differences between four groups of factors, which are: size of the capital market, sector classification, rates of return on the first day of listing and key operational characteristics at the time of debut.In fact, IPOs backed by private equity are more valuable in terms of sales and assets, and therefore more profitable.That is why a liquid capital market is so important for funds, enabling an effective debut process.Problems with the possibility of exiting through the stock exchange lead to a decrease in investment profitability and fund performance, and as a consequence, extending the period of time companies remain in the portfolio and problems with the return of funds to its investors.The main aim of the article is to examine trends on the global stock market as well as local one in Poland and their impact on the number and value of disinvestments of private equity and venture capital funds in the period of 2000-2022.During this period one could observed many hot and cold periods at the stock exchanges regarding IPO transactions.Currently we have some slow down in IPO transactions witch has an effect on private equity and venture capital industry.This study examined the problems of IPO transactions conducted by venture capital and private equity funds at Warsaw Stock Exchange.The article analyses the relationship between private equity and venture capital backed IPO and situation at the stock exchange that influence type of exits for the funds.An additional goal was to present a classification of selected type of divestments conducted by private equity and venture capital funds in the period of in Poland.Design/methodology/approach: The study employed data form Warsaw Stock Exchange as well as from Invest Europe, (formerly known as EVCA -European Private Equity & Venture Capital Association) which represents the venture capital and private equity funds and community in Europe.Data was combined with cycles of investments and divestments of PE and VC funds that operated in Poland in the period of 2000-2022.The article uses a simple methodology to calculate the shares and dynamics of the analyzed phenomenon of IPO transactions conducted by private equity funds.Findings: The empirical studies helped to identify a positive correlation between situation at the stock exchange and private equity and venture capital divestments methods, especially IPO.Data shows that in recent years IPO market is not effective in Poland, what influence Private Equity backed IPO and its investments.Number of IPO is lowering and almost 60% of PE/VC backed IPO are held at the foreign stock exchanges.IPO market is not effective in Poland, P. Zaspa what influence VC/PE backed IPO and its investments.Studies finds shrinking number and value of VC/PE backed IPO which also influence the future level of fund's investments.Originality/value: This paper examine problems of IPO at the Warsaw Stock Exchange and how it influence private equity backed IPO in Poland.This is rare study that highlights problems of divestments of PE funds through IPO.