Do Founders Control Start-Up Firms that Go Public?
53 Pages Posted: 7 May 2018 Last revised: 2 Mar 2019
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
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