Common Ownership and Startup Growth

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