Common Ownership and Startup Growth

61 Pages Posted: 24 Jun 2019

See all articles by Ofer Eldar

Ofer Eldar

Duke University School of Law; Duke University - Fuqua School of Business; Duke Innovation & Entrepreneurship Initiative

Jillian Grennan

Duke University - Fuqua School of Business; Duke Innovation & Entrepreneurship Initiative

Katherine Waldock

Georgetown University McDonough School of Business

Date Written: June 18, 2019

Abstract

Is common ownership anticompetitive or do firms benefit when the same investors hold stakes in competing firms? We exploit a quasi-natural experiment in the venture capital (VC) industry - the staggered introduction of exemptions from liability when investors pursue conflicting business opportunities - as a shock to common ownership. We find increases in same-industry investment and directorships held at competing startups. Despite potential conflicts from information sharing, commonly held startups benefit by raising more capital through more investment rounds. Evidence from VC funds' returns and startups' exits suggests common ownership helps weaker startups improve rather than biasing competition toward winners.

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

JEL Classification: G32, G24, G28

Suggested Citation

Eldar, Ofer and Grennan, Jillian and Waldock, Katherine, Common Ownership and Startup Growth (June 18, 2019). Duke Law School Public Law & Legal Theory Series No. 2019-42; Georgetown McDonough School of Business Research Paper No. 3406205. Available at SSRN: https://ssrn.com/abstract=3406205 or http://dx.doi.org/10.2139/ssrn.3406205

Ofer Eldar

Duke University School of Law ( email )

210 Science Drive
Box 90362
Durham, NC 27708
United States

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States

Duke Innovation & Entrepreneurship Initiative ( email )

215 Morris St., Suite 300
Durham, NC 27701
United States

Jillian Grennan (Contact Author)

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States

Duke Innovation & Entrepreneurship Initiative ( email )

215 Morris St., Suite 300
Durham, NC 27701
United States

Katherine Waldock

Georgetown University McDonough School of Business ( email )

3700 O Street, NW
Washington, DC 20057
United States

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