Outside Directors at Early-Stage Startups

Abstract

We document substantial variation across startups in whether and when they appoint outside directors, and the type of directors they appoint. The startup-director match depends on professional connections and individual experience profiles. Early-stage investors are more likely to serve as outside directors when there is a local scarcity of directors. Outside directors leverage their professional connections to attract new investors, directors, top executives, and potential acquirers for startups. Overall, presence of an early-stage outside director is associated with better funding outcomes and higher probability of exit through IPO, although presence of an investor-director makes exit via acquisition more likely.

Keywords: Board of Directors, Startups

JEL Classification: G24, G34, L26, M13