How to evaluate an IPO, according to Houston researchers

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In emerging markets, pricing — not reputation — drives the partnership between underwriter and IPO. Photo via business.rice.edu

Many investors assume they can judge the strength of an IPO based on the reputation of the underwriter supporting it.

However, a recent study by Rice Business professors Anthea Zhang and Haiyang Li, along with Jin Chen (Nottingham University) and Jing Jin (University of International Business and Economics), proves this is only sometimes true — depending on how mature the stock exchange is.

Getting your company listed on the stock market is a big step. It opens new opportunities to raise money and grow the business. But it also means facing increased regulations, reporting requirements and public scrutiny.

To successfully launch an initial public offering (IPO), most companies hire “underwriters” — financial services firms — to guide them through the complex process. Because underwriters have expertise in valuations, filing paperwork and promoting to investors, they play a crucial role in ushering companies onto the market.

In well-established markets like the New York Stock Exchange (NYSE), an underwriter’s reputation carries immense weight with investors. Top-tier banks like Goldman Sachs have built their reputations by rigorously vetting and partnering with only the most promising companies. When Goldman Sachs takes on the role of underwriter, it sends a strong signal to potential investors that the IPO has met stringent standards. After all, a firm of Goldman’s caliber would not risk tarnishing its hard-earned reputation by associating with subpar companies.

Conversely, IPO firms recognize the value of having a prestigious underwriter. Such an association lends credibility and prestige, enhancing the company’s appeal. In a mature market environment, the underwriter’s reputation correlates to the IPO’s potential, benefiting both the investors who seek opportunities and the companies wanting to make a strong public debut.

However, assumptions about an underwriter’s reputation only hold true if the stock exchange is mature. In emerging or less developed markets, the reputation of an underwriter has no bearing on the quality or potential of the IPO it pairs with.

In an emerging market, the study finds, investors should pay attention to how much the underwriter charges a given IPO for their services. The higher the fee, the riskier it would be to invest in the IPO firm.

To arrive at their findings, the researchers leveraged a unique opportunity in China’s ChiNext Exchange. When ChiNext opened in 2009, regulations were low. Banks faced little consequence for underwriting a substandard IPO. Numerous IPOs on ChiNext were discovered to have engaged in accounting malpractice and inaccurate reporting, resulting in financial losses for investors and eroding confidence in the capital markets. So, for 18 months during 2012-2013, ChiNext closed. When it reopened, exchange reforms were stricter. And suddenly, underwriter reputation became a more reliable marker of IPO quality.

“Our research shows how priorities evolve as markets mature,” Zhang says. “In a new or developing exchange without established regulations, underwriter fees paid by IPO firms dictate the underwriter-company partnership. But as markets reform and mature, reputation and quality become the driving factors.”

The study makes a critical intervention in the understanding of market mechanisms. The findings matter for companies, investors and regulators across societies, highlighting how incentives shift, markets evolve and economic systems work.

The research opens the door to other areas of inquiry. For example, future studies could track relationships between underwriters and companies to reveal the long-term impacts of reputation, fees and rule changes. Research along these lines could help identify best practices benefiting all market participants.

“In the future, researchers could explore how cultural norms, regulations and investor behaviors influence IPO success,” says Li. “Long-term studies on specific underwriter-firm pairs could reveal insights into investor confidence and market stability. Understanding these dynamics can benefit companies, investors and policymakers alike.”

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This article originally ran on Rice Business Wisdom and was based on research from Yan “Anthea” Zhang, the Fayez Sarofim Vanguard Professor of Management – Strategic Management at Rice Business, and Haiyang Li, the H. Joe Nelson III Professor of Management – Strategic Management at Rice Business.

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A patent is an asset — one with a price associated with it when it comes to procuring a loan for your business. Photo via Getty Images

Rice research: What innovations can be used to borrow against?

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For companies and leaders, patents represent important assets. They’re a marker of innovation and tech development. But patents do so much more than protect intellectual property. Firms increasingly deploy them as collateral to secure loans. Between 1995 and 2013, the number of patents pledged as loan collateral increased from about 10,000 to nearly 50,000. Forty percent of U.S. patenting firms have used patents as collateral.

However, patents are intangible assets, and their liquidity and liquidation value are difficult to assess. To evaluate an individual patent, lenders must consider the invention space to which the patent belongs. A patent’s linkage to prior inventions can provide important information for lenders, as the linkage affects the extent to which the patent under consideration may be redeployed and potentially purchased by other firms in the case of loan default.

Rice Business professor Yan Anthea Zhang examined more closely how this market operates and how both lenders and borrowers can make more informed decisions on which patents make appealing collateral. In their paper, “Which patents to use as loan collateral? The role of newness of patents' external technology linkage,” Zhang, who specializes in strategic management, and her co-authors studied the data on 107,180 U.S. semiconductor patents owned by 436 U.S. firms. The team focused on semiconductor patents because the semiconductor industry involves intensive innovation, which leads to many patent applications and grants. The market for semiconductor patents is an active and well-functioning market, given specialization in different stages of the innovation process and the growing technological market. Information on whether a patent was used as loan collateral came from the USPTO Patent Assignments Database.

Zhang and her colleagues argue that lenders prefer patents linked to prior inventions that are relatively new because these patents are riding on recent technology waves and are less likely to become obsolete. As a result, such patents are likely to remain deployable to other firms in the future. However, patents that are based upon too new prior inventions might not prove to be commercially viable and carry higher risk for lenders.

As a result of this research, Zhang and her colleagues found an inverted U-shape relationship to demonstrate the likelihood that a patent will be used as loan collateral. On one end, patents based upon the newest prior inventions, on the other, patents based upon mature prior inventions. The curve of the U-shape represents the sweet spot for patent collateral—the patents’ technological base is new enough to be relevant and competitive with other firms in its invention space, but not so new that it has yet to prove market success.

Zhang’s team also found that the impact of external linkage also varies depending on borrower attributes, especially the borrowers’ expertise in the invention space. If a borrower is a technological leader in the invention space, the market tends to give the borrower credit, and as a result, even if its patents are based upon very new prior inventions, its patents are still likely to be accepted as collateral.

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This article originally ran on Rice Business Wisdom and was based on research from Yan Anthea Zhang, the Fayez Sarofim Vanguard Professor of Management at Rice Business.

Expanding into foreign markets is tempting, but strategic fit can determine success or disaster. Photo via Getty Images

To expand or not to expand? Houston researcher weighs in on global growth

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You built your business from the ground up, patiently finding techniques and products that work, carefully crafting solid bonds with your clients. Then one day a new project, opportunity or simple request poses a question: Is it time to branch out overseas?

Of the welter of questions to consider, the first and most important involves location: not just the physical location of the prospective expansion site, but the cultural differences between a firm's home country and its new destination. Secondly, key company traits need to be considered in choosing the investment locations. Is your firm large or small? Young or old? Finally, of pivotal importance to companies outside the United States: Is your company privately held or state-owned?

In a recent paper, Rice Business professor Yan Anthea Zhang looked closely at these three variables with Yu Li of the University of International Business and Economics Business School in Beijing, China and Wei Shi of the Miami Business School at the University of Miami. What, the researchers wanted to know, was the relation of these three features and firms' location choices for their overseas investments?

To find out, Zhang and her colleagues analyzed 7,491 Chinese firms that had recently ventured into foreign markets with 9,558 overseas subsidiaries. Because China now has become the world's leading source of foreign direct investments, the sample promised to be instructive. Thanks to the large sample size, researchers could test hypotheses relating to firm size, age, ownership and the impact of geographical and cultural distance on their location choices.

After studying the elements of geographic distance and cultural distance, Zhang and her colleagues uncovered a paradox. Companies that had an advantage in tackling one dimension of distance were actually disadvantaged — because of the same characteristic — in another dimension.

How, exactly, did this paradox work? Larger firms, with access to more resources, can "experiment with new strategies, new products, and new markets," the researchers wrote. This large size makes geographic distance less of a concern, but it comes with a ponderous burden of its own. Company culture is directly influenced by the country of origin, Zhang wrote. Transferring that culture into a completely different environment can cause the kind of shock that could lead to failure, even with financial and physical resources to ease the geographical distance. Conversely, smaller firms may be more nimble and able to adapt to needed cultural changes — but lack the resources to make true inroads in a foreign market.

A similar paradox exists for older and younger firms, Zhang wrote. A younger firm is more likely to adapt to a culturally distant country than an older firm might, even if that youth means that geographical distance is a greater logistical challenge.

State-owned firms face a similar paradox, one that comes down to the balance of resources against cultural flexibility. A company with state-generated resources may be better equipped to move a caravan people, machinery and materials to a distant new location. However, state-owned companies often typically lack the internal cultural flexibility to handle expansion to a different environment.

What does this mean for the average manager? Simply that going global demands meticulous weighing of factors. Does your firm have the practical resources to expand overseas? Does your staff have the personal flexibility and willingness to meld company culture with that of a different milieu? It's a truism that major overseas expansions require money and heavy lifting. Less obviously, managers of successful companies must thread a very fine needle: ensuring they have the material resources to get their business overseas physically, while confirming that company culture is light enough on its feet to thrive in day-to-day life in a new place.

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This article originally ran on Rice Business Wisdom and is based on research from Yan Anthea Zhang, a professor and the Fayez Sarofim Vanguard Chair of Strategy in the Jones Graduate School of Business at Rice University.

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Houston health tech co. lands NIH grant for AI cancer prediction tool

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Houston-based CellChorus and Stanford Medicine were recently awarded a Phase I Small Business Innovation Research grant for the company's AI platform to test how certain cancer patients will respond to therapies.

The funding comes from the National Cancer Institute of the National Institutes of Health. According to a filing, the grant totaled just under $400,000.

CellChorus, which spun out from the University of Houston’s Technology Bridge, has developed TIMING (Time-lapse Imaging Microscopy In Nanowell Grids), which analyzes the behavior of thousands of individual immune cells over time and can identify early indicators of treatment success or failure.

The company will work with Stanford's Dr. David Miklos and Dr. Saurabh Dahiya, who have built the Bone Marrow Transplantation and Cell Therapy Biobank. The biobank manages and stores biological samples from patients treated at their clinic and in clinical trials.

"Predicting which patients will achieve durable responses after CAR-T therapy remains one of the most important challenges in the field,” Miklos said in a news release. “We aim to uncover functional cellular signatures that can guide treatment decisions and improve patient outcomes.”

The project will specifically profile cells from patients with relapsed/refractory large B-cell lymphoma (r/rLBCL). According to CellChorus, only about half of r/rLBCL patients who receive CAR-T therapy "achieve a durable, long-term remission." Others do not respond to therapy or experience relapse.

“The sooner we know whether a cancer therapy is working, the better. To maximize patient benefit, we need technology that can provide a robust and early prediction of response to therapy. The technology needs to be scalable, cost-efficient, and capable of rapid turnaround times,” Rebecca Berdeaux, chief scientific officer of CellChorus, added in the release. “We are excited to work with Drs. David Miklos and Saurabh Dahiya and their colleagues on this very important project.”

CellChorus has previously received SBIR grants from federal agencies, including a $2.5 million award in 2024 from its National Center for Advancing Translational Sciences (NCATS) and a $2.3 million SBIR Fast-Track award from the National Institute of General Medical Sciences in 2023.

Houston museum showcases America's founding documents in rare exhibit

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As the United States prepares to celebrate its 250th birthday, Houstonians have a chance to see rare documents from the founding of the nation. Freedom Plane National Tour: Documents That Forged a Nation, presented by the National Archives Foundation, will be on display at the Houston Museum of Natural Science through Monday, May 25.

The collection includes a rare engraving of the original Declaration of Independence; official Oaths of Allegiance signed by George Washington, Aaron Burr, and Alexander Hamilton; a draft of the Bill of Rights; the Treaty of Paris, the documented that recognized America's independence from Great Britain; and the tally of votes approving the Constitution.

The National Archives specifically chose Houston as one of only eight cities in the country to host the exhibit as a means to help the documents reach a wider audience outside of the main hub of semiquincentennial events in New England and the Washington, D.C. area.

"One of the things we decided when we put the tour together because we wanted to be off the East Coast," said Patrick Madden, CEO of the National Archives Foundation, who was onsite for the exhibit's opening in Houston. "There's a lot of 250th celebration stuff happening in the original 13 colonies. How do we get it to major markets where larger numbers of people can see it? So in the case of Houston, obviously, [is a] major market in this part of the country, but also we've partnered with the museum twice before with National Archives exhibits, so we knew that they would be up to the task of handling the exhibit and the crowds."

The star of the collection is a rare engraving of the original Declaration of Independence. Secretary of State and future president John Quincy Adams commissioned 200 exact replicas of the document from engraver William J. Stone in 1823. Less than 50 now remain. Madden joyfully pointed out that there are errors in this document, a potent reminder that the men who forged a nation made mistakes.

"There's a couple of typos in it where they had to make corrections," said Madden. "So even the founders, you know, they're all human. That resonates because here these people are making this move against the most powerful nation in the world and putting their lives on the line for a country based on ideas."

Other impressive parts of the collection include official Oaths of Allegiance signed by George Washington, Aaron Burr, and Alexander Hamilton, as well as one of the drafts of the Bill of Rights. Many states would not ratify the Constitution until certain rights were included in the document, leading to Washington going on a national tour assuring state leaders enshrining protections was first on the list. The draft copy on display specifically shows the First Amendment in progress.

Houston is the fourth stop on the exhibition's tour, which will take the documents to Denver, Miami, Dearborn, and Seattle through the summer. Freedom Plane is just one part of a larger patriotic celebration at the HMNS, which includes a film series celebrating American science and culture and general Americana decoration throughout the main hall.

Admission to Freedom Plane is free to the public, but separate from general admission to the museum. Space is limited, and passes are available on a first-come, first-serve basis. Non-members should expect long waits or the possibility that the day's passes are sold out. Only museum members can reserve passes for specific times. Flash photography is prohibited due to the fragile nature of the documents.

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This article originally appeared on CultureMap.com.

Houston quantum energy chip startup emerges from stealth with $12M round

seed funding

Houston-based Casimir has emerged from stealth with a $12 million seed round to commercialize its quantum energy chip.

The round was led by Austin-based Scout Ventures. Lavrock Ventures, Cottonwood Technology, Capital Factory, American Deep Tech, and Tim Draper of Draper Associates also participated in the round. The oversubscribed round exceeded the company’s original $8 million target, according to a news release.

Casimir’s semiconductor chips can generate power from quantum vacuum fields without the need for batteries or charging. The company plans to commercialize its first-generation MicroSparc chip by 2028.

The MicroSparc chip measures 5 millimeters by 5 millimeters and is designed to produce 1.5 volts at 25 microamps, comparable to a small rechargeable battery, without degradation and no replacement cycle.

“Casimir represents exactly the kind of breakthrough dual-use technology Scout Ventures was built to back,” Brad Harrison, founder and managing partner at Scout Ventures, said in the release. “This is based on 100 years of science and we’re finally approaching a commercial product … We’re proud to lead this round and support Casimir’s journey from applied science to deployed technology.”

Casimir says it aims to scale its technology across the ”full power spectrum,” including large-scale energy systems that can power homes, commercial infrastructures and electric vehicles.

Casimir's scientific work has been supported by DARPA-funded nanofabrication research and its technology was incubated at the Limitless Space Institute (LSI). LSI is a nonprofit that works to innovate interstellar travel and was founded by Kam Ghaffarian. Technology investor and serial entrepreneur Ghaffarian has been behind companies like X-energy, Intuitive Machines, Axiom Space and Quantum Space.

Harold “Sonny” White, founder and CEO of Casimir, believes the technology can power devices for years without replacements.

“Millions of devices will operate for years without a battery ever needing to be replaced or recharged because we have engineered a customized Casimir cavity into hardware capable of producing persistent electrical power,” White added in the release. “I spent nearly two decades at NASA studying how we power humanity’s future. That work led me to the Casimir effect and the quantum vacuum, where new tools have allowed us to build on a century of scientific knowledge and bring abundant power to the world.”

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