Abstract ：
We study IPO pricing when underwriters are venture capital investors in issuers and evaluate whether this creates a serious conflict of interest with IPO investors or reduces the conflict of interest with IPO issuers.   Theoretically, prior underwriter venture investment has several effects.  First, it can improve underwriter access to IPO issuer information, thereby enhancing the credibility of due diligence investigations, which raises investor demand and IPO offer prices.  Second, it can increase an underwriter’s conflict of interest with IPO investors, which decreases the credibility of its due diligence investigation, lowering investor demand and IPO offer prices when prices are set competitively. Third, it improves the alignment of interest of underwriters and IPO issuers, which results in higher IPO offer prices, if underwriters have some pricing power and capture rents from allocating underpriced issues.