Common Venture Capital Investors and Startup Growth

150 Pages Posted: 24 Jun 2019 Last revised: 30 Aug 2023

See all articles by Ofer Eldar

Ofer Eldar

University of California, Berkeley - School of Law; European Corporate Governance Institute (ECGI)

Jillian Grennan

University of California, Berkeley, Haas School of Business, Institue for Business and Social Impact

Date Written: June 10, 2020

Abstract

We exploit the staggered introduction of liability waivers when investors hold stakes in conflicting business opportunities as a shock to venture capital (VC) investment and director networks. After the law changes, we find increases in within-industry VC investment and common directors serving on startup boards. Despite the potential for rent extraction, same-industry startups inside VC portfolios benefit by raising more capital, failing less, and exiting more successfully. VC directors serving on other startup boards are the primary mechanism associated with positive outcomes, consistent with common VC investment facilitating informational exchanges in VC portfolios.

Keywords: Entrepreneurship, Startups, Venture Capital, Corporate Governance, Fiduciary Duty, Duty of Loyalty, Conflict of Interest, Corporate Opportunity Waivers, Board of Directors, Initial Public Offerings (IPOs), Raising Capital

JEL Classification: G32, G24, G28

Suggested Citation

Eldar, Ofer and Grennan, Jillian, Common Venture Capital Investors and Startup Growth (June 10, 2020). The Review of Financial Studies (Forthcoming), European Corporate Governance Institute – Finance Working Paper No. 902/2023, Available at SSRN: https://ssrn.com/abstract=3406205 or http://dx.doi.org/10.2139/ssrn.3406205

Ofer Eldar

University of California, Berkeley - School of Law ( email )

215 Law Building
Berkeley, CA 94720-7200
United States

European Corporate Governance Institute (ECGI) ( email )

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

Jillian Grennan (Contact Author)

University of California, Berkeley, Haas School of Business, Institue for Business and Social Impact ( email )

Berkeley, CA 94720
United States

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