Common Ownership and Startup Growth

119 Pages Posted: 24 Jun 2019 Last revised: 11 Jun 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

Santa Clara University, Leavey School of Business; Santa Clara University School of Law; University of California, Berkeley, Haas School of Business, Institue for Business and Social Impact

Katherine Waldock

Georgetown University McDonough School of Business

Date Written: June 10, 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 through IPOs or acquisitions by another commonly-held startup. These successful startup outcomes are linked to VC directors serving on other startup boards.

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 10, 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)

Santa Clara University, Leavey School of Business ( email )

Santa Clara, CA 95053
United States

Santa Clara University School of Law ( email )

500 El Camino Real
Santa Clara, CA 95053
United States

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

Berkeley, CA 94720
United States

Katherine Waldock

Georgetown University McDonough School of Business ( email )

3700 O Street, NW
Washington, DC 20057
United States

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