The Private Value of Entrepreneurial Control: Evidence from a Discrete Choice Experiment

31 Pages Posted: 12 Nov 2020 Last revised: 10 Aug 2021

See all articles by Marius Berger

Marius Berger

ZEW – Leibniz Centre for European Economic Research

Maikel Pellens

Ghent University; MSI, Faculty of Business and Economics, KULeuven; Centre for European Economic Research

Thorsten Doherr

ZEW – Leibniz Centre for European Economic Research

Sandra Gottschalk

ZEW – Leibniz Centre for European Economic Research

Date Written: September 22, 2020

Abstract

We study how much entrepreneurs value being in control over their ventures. Even though control and independence are widely believed to be an important reward to entrepreneurship, and despite the importance of control rights for venture capital contract design, it remains unknown how much entrepreneurs value being in control. In this article, we perform a discrete choice experiment with a sample of entrepreneurs in Germany to estimate the value of control in the setting of venture capital investment. In the experiment, participants choose between hypothetical investment offers that carry different equity stakes, control rights, and VC value-added activities. We find that entrepreneurs highly value control: entrepreneurs are willing to give up an additional 38% of equity shares to investors to avoid that the VC obtains a voting majority. We additionally estimate entrepreneurs' valuations of VC value-added activities. We find that these carry a premium, reaching 12% of equity when the investor offers market access support. Our findings hint that control requirements form important entry barriers for entrepreneurs to venture capital financing.

Keywords: Entrepreneurial Finance, Control Rights, Discrete Choice Experiment

JEL Classification: G24, G41

Suggested Citation

Berger, Marius and Pellens, Maikel and Doherr, Thorsten and Gottschalk, Sandra, The Private Value of Entrepreneurial Control: Evidence from a Discrete Choice Experiment (September 22, 2020). Available at SSRN: https://ssrn.com/abstract=3697311 or http://dx.doi.org/10.2139/ssrn.3697311

Marius Berger (Contact Author)

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

Maikel Pellens

Ghent University ( email )

Ghent, 9000
Belgium

MSI, Faculty of Business and Economics, KULeuven ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

Centre for European Economic Research

Mannheim
Germany

Thorsten Doherr

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68161 Mannheim
Germany

Sandra Gottschalk

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

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