Governance in Entrepreneurial Ecosystems: Venture Capitalists vs. Technology Parks

SAFE Working Paper No. 135

45 Pages Posted: 10 May 2016

See all articles by Douglas J. Cumming

Douglas J. Cumming

Florida Atlantic University; Birmingham Business School; European Corporate Governance Institute (ECGI)

Jochen Christian Werth

Goethe University Frankfurt

Yelin Zhang

Gonzaga University - School of Business Administration

Date Written: March 25, 2016

Abstract

We argue two alternative routes that lead entrepreneurial start-ups to acquisition outcomes instead of liquidation. On one hand, acquisitions can come about through the control route with external financers such as venture capitalists (VCs). VCs take control through their board seats along with other contractual rights that can bring about changes in a start-up necessary to successfully attract a strategic acquirer. Consistent with this view, we show that VCs often replace the founding entrepreneur as CEO long before an acquisition exit. On the other hand, acquisitions can come about through advice and support provided to the start-up, such as that provided by an incubator or technology park. Based on a sample of 251 Crunchbase companies in the U.S. over the years 2007 to 2014, we present evidence that is strongly consistent with these propositions. Further, we show that the data indicate a tension between VC-backing of start-ups resident in technology parks insofar as such start-ups are slower to become, and less likely to be, acquired.

Keywords: Entrepreneurship, Entrepreneurial Finance, Governance, Technology Park, Incubator, Board of Directors, Venture Capital, Angel

JEL Classification: G23, G24, L26

Suggested Citation

Cumming, Douglas J. and Werth, Jochen Christian and Zhang, Yelin, Governance in Entrepreneurial Ecosystems: Venture Capitalists vs. Technology Parks (March 25, 2016). SAFE Working Paper No. 135, Available at SSRN: https://ssrn.com/abstract=2777423 or http://dx.doi.org/10.2139/ssrn.2777423

Douglas J. Cumming (Contact Author)

Florida Atlantic University ( email )

777 Glades Rd
Boca Raton, FL 33431
United States

HOME PAGE: http://sites.google.com/view/douglascumming/bio?authuser=0

Birmingham Business School ( email )

Edgbaston Park Road
Birmingham, B15 2TY
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: http://https://ecgi.global/users/douglas-cumming

Jochen Christian Werth

Goethe University Frankfurt ( email )

GrĂ¼neburgplatz 1
Frankfurt am Main, 60323
Germany

Yelin Zhang

Gonzaga University - School of Business Administration ( email )

Spokane, WA
United States

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