Do Founders Control Start-Up Firms that Go Public?

53 Pages Posted: 7 May 2018 Last revised: 11 Feb 2021

See all articles by Brian J. Broughman

Brian J. Broughman

Vanderbilt University Law School

Jesse M. Fried

Harvard Law School; European Corporate Governance Institute (ECGI)

Date Written: September 4, 2018


Black & Gilson (1998) argued that an IPO-welcoming stock market stimulates venture deals by enabling VCs to give founders a valuable “call option on control”. We study 18,000 startups to investigate the value of this option. Among firms that IPO, 60% of founders are no longer CEO. With little voting power, only half of the others survive three years as CEO. At initial VC financing, the probability of getting real control of a public firm for three years is 0.4%. Our results shed light on control evolution in startups, and cast doubt on the plausibility of the call-option theory linking stock and VC markets.

Keywords: Startups, Founders, Venture Capital, VC, IPOs, Stock Markets, Innovation, Entrepreneurs, Venture Capitalists, Corporate Governance, CEO, Shareholders, NASDAQ

JEL Classification: G24, G30, G32, G34, G38, H25, K2, K22, M13

Suggested Citation

Broughman, Brian J. and Fried, Jesse M., Do Founders Control Start-Up Firms that Go Public? (September 4, 2018). European Corporate Governance Institute (ECGI) - Law Working Paper No. 405/2018, Harvard Public Law Working Paper No. 18-23, Indiana Legal Studies Research Paper No. 401, Harvard Business Law Review, Vol. 10, 2020, Available at SSRN: or

Brian J. Broughman

Vanderbilt University Law School ( email )

131 21st Avenue South
Nashville, TN 37203-1181
United States

Jesse M. Fried (Contact Author)

Harvard Law School ( email )

1575 Massachusetts
Griswold Hall 506
Cambridge, MA 02138
United States
617-384-8158 (Phone)


European Corporate Governance Institute (ECGI) ( email )

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

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