Outside Directors at Early-Stage Startups

45 Pages Posted: 31 Jan 2019

See all articles by Buvaneshwaran Venugopal

Buvaneshwaran Venugopal

University of Central Florida - College of Business Administration

Vijay Yerramilli

University of Houston, C. T. Bauer College of Business

Date Written: January 21, 2019

Abstract

We use unique hand-collected data to understand why early-stage startups appoint outside directors, the type of outside directors they appoint, and the consequent effects on their future performance. Early-stage startups with better performance and less severe agency conflicts with their investors are more likely to appoint outside directors. An individual is more likely to be appointed to this role if he has invested in that startup, shares a past professional connection with the startup's founder or investors, has past entrepreneurial or board experience, and whose experience complements that of the founder. A start-up is more likely to attract future directors and future investors that share a past professional connection with the early-stage outside director. Early-stage startups with outside directors raise larger amounts in later-stage rounds, are more likely to attract VC funding, file more patents, and are more likely to exit successfully, especially through IPOs than similar startups without outside directors. Interestingly, startups whose early-stage investors serve as directors take longer to exit, are more likely to exit via acquisition rather than IPO, and file fewer patents than similar startups with non-investor directors.

Keywords: Board of Directors, Startups

JEL Classification: G24, G34, L26, M13

Suggested Citation

Venugopal, Buvaneshwaran and Yerramilli, Vijay, Outside Directors at Early-Stage Startups (January 21, 2019). Available at SSRN: https://ssrn.com/abstract=3320010 or http://dx.doi.org/10.2139/ssrn.3320010

Buvaneshwaran Venugopal (Contact Author)

University of Central Florida - College of Business Administration ( email )

PO Box 161400
Orlando, FL 32816
United States

Vijay Yerramilli

University of Houston, C. T. Bauer College of Business ( email )

Houston, TX 77204
United States
713-743-2516 (Phone)

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