Common Ownership and Startup Growth

90 Pages Posted: 24 Jun 2019 Last revised: 27 Feb 2020

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: February 26, 2020

Abstract

Many startups are commonly-held by the same venture capital (VC) investors. We exploit the staggered introduction of liability exemptions when investors hold stakes in conflicting business opportunities as a shock to common ownership. We find increases in common ownership and directors serving on rivals' boards after the law changes. Despite the potential for rent-extraction, commonly-held startups benefit by raising more capital through more investment rounds. Moreover, they are less likely to fail and exit more successfully. Specifically, common ownership is associated with a higher rate of acquisitions by another commonly-held startup, a higher rate of IPOs and larger IPO valuations.

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 (February 26, 2020). 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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