Valuable Choices: Prominent Venture Capitalists' Influence on Startup CEO Replacements

Conti, Annamaria; Graham, Stuart J.H.

doi:10.2139/ssrn.2738835

Valuable Choices: Prominent Venture Capitalists' Influence on Startup CEO Replacements

FORTHCOMING IN MANAGEMENT SCIENCE

Georgia Tech Scheller College of Business Research Paper No. 2016-48

92 Pages Posted: 29 Feb 2016 Last revised: 24 Aug 2020

See all articles by Annamaria Conti

Stuart J.H. Graham

Georgia Institute of Technology - Scheller College of Business

There are 2 versions of this paper

Date Written: February 26, 2016

Abstract

This paper explores how prominent VCs affect CEO replacement in startups. Defining prominence using eigenvector centrality, we employ matching methods and instrumental variables to show that startup CEO replacement occurs more often, and faster, when prominent VCs participate. We further explore these VCs' comparative advantage in managing CEO turnover, finding that the prominent VC effects increase as replacement costs rise, such as when incumbent CEOs are entrenched or possess specialized technology know-how, or startups are early stage. When prominent VCs participate, replacement CEOs are disproportionately experienced outsiders - external hires who possess prior startup-CEO experience. Our results reveal that CEO turnover is associated with increases in startups' ex post innovation and survival performance, with experienced

Keywords: Startups, Investors, Venture capital, CEO turnover, Firm performance, Entrepreneurship

JEL Classification: G24, G32, L26, M13

Suggested Citation: Suggested Citation

Conti, Annamaria and Graham, Stuart J.H., Valuable Choices: Prominent Venture Capitalists' Influence on Startup CEO Replacements (February 26, 2016). FORTHCOMING IN MANAGEMENT SCIENCE, Georgia Tech Scheller College of Business Research Paper No. 2016-48, Available at SSRN: https://ssrn.com/abstract=2738835 or http://dx.doi.org/10.2139/ssrn.2738835