This paper examines initial returns to venture capital (VC) backed and non-VC-backed IPO companies on the Australian Securities Exchange (ASX). We find support for the theoretical predictions of Rossetto (2008), by providing empirical evidence that VC-backed CTE IPOs exhibit greater wealth losses to pre-IPO investors compared to non-VC-backed CTE IPOs during hot issue markets. We also find that greater retained ownership increases IPO underpricing. In the subsample of IPOs with below the median level of retained ownership IPOs, VC-backed CTE IPOs and VC-backed, non-CTE IPOs have significantly higher levels of underpricing and wealth loss compared to non-VC-backed, non-CTE IPOs.