Board Dynamics Over the Startup Life Cycle

65 Pages Posted: 13 Jul 2020 Last revised: 18 Mar 2021

See all articles by Michael Ewens

Michael Ewens

California Institute of Technology - Division of the Humanities and Social Sciences; National Bureau of Economic Research (NBER)

Nadya Malenko

University of Michigan, Stephen M. Ross School of Business; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Multiple version iconThere are 3 versions of this paper

Date Written: March 12, 2021

Abstract

Venture capital (VC) backed firms face neither the regulatory requirements nor a major separation of ownership and control of their public peers. These differences suggest that independent directors could play a unique role on private firm boards. This paper explores the dynamics of VC-backed startup boards using novel data on director entry, exit, and characteristics. We document new facts about board composition, allocation of control, and dynamics, and examine the roles of independent directors. At formation, a typical board is entrepreneur-controlled. Independent directors join the median board after the second financing, when board control becomes shared, with independent directors holding the tie-breaking vote between entrepreneurs and VCs. At later stages, control switches to VCs and independent director characteristics change. These patterns are consistent with independent directors playing both a mediating and advising role over the startup life cycle, and thus representing another potential source of value-add to startup performance.

Keywords: venture capital, board of directors, corporate governance, independent directors, mediation

JEL Classification: G24,G34

Suggested Citation

Ewens, Michael and Malenko, Nadya, Board Dynamics Over the Startup Life Cycle (March 12, 2021). European Corporate Governance Institute – Finance Working Paper No. 687/2020, Available at SSRN: https://ssrn.com/abstract=3640898 or http://dx.doi.org/10.2139/ssrn.3640898

Michael Ewens (Contact Author)

California Institute of Technology - Division of the Humanities and Social Sciences ( email )

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Nadya Malenko

University of Michigan, Stephen M. Ross School of Business ( email )

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Centre for Economic Policy Research (CEPR) ( email )

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European Corporate Governance Institute (ECGI) ( email )

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