Why do startups become unicorns instead of going public? 

79 Pages Posted: 19 Jul 2024

See all articles by Daria Davydova

Daria Davydova

École Polytechnique Fédérale de Lausanne

Rüdiger Fahlenbrach

École Polytechnique Fédérale de Lausanne; Swiss Finance Institute; European Corporate Governance Institute (ECGI)

Leandro Sanz

Ohio State University (OSU) - Department of Finance

René M. Stulz

Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

Date Written: June 28, 2024

Abstract

Unicorns are startups that choose to stay private even though they are large enough to go public. We propose an efficiency explanation for their existence. Startups relying highly on organization capital are more vulnerable to expropriation of their organization capital if they go public before their position is sufficiently secure. Our main empirical findings are that shocks to the fragility of organization capital decrease the IPO likelihood, unicorn status enables startups to stay private longer by giving them access to new sources of capital, and unicorns and their industries have higher organization capital intensity than other startups.

Keywords: Unicorns, Organization Capital, Scale and Scope, Venture Capital, Private vs. Public

JEL Classification: G24, G32, G34

Suggested Citation

Davydova, Daria and Fahlenbrach, Rüdiger and Sanz, Leandro and Stulz, Rene M., Why do startups become unicorns instead of going public?  (June 28, 2024). Fisher College of Business Working Paper No. 2024-03-010 and Charles A. Dice Center WP 2024-10, European Corporate Governance Institute – Finance Working Paper No. 857/2022, Available at SSRN: https://ssrn.com/abstract=4899183 or http://dx.doi.org/10.2139/ssrn.4899183

Daria Davydova

École Polytechnique Fédérale de Lausanne

Quartier UNIL-Dorigny, Bâtiment Extranef, # 211
40, Bd du Pont-d'Arve
CH-1015 Lausanne, CH-6900
Switzerland

Rüdiger Fahlenbrach

École Polytechnique Fédérale de Lausanne ( email )

Quartier UNIL-Dorigny
Extranef 211
1015 Lausanne, CH-1015
Switzerland
++41-21-693-0098 (Phone)
++41-21-693-3010 (Fax)

HOME PAGE: http://https://www.epfl.ch/labs/sfi-rf/

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Leandro Sanz

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

Rene M. Stulz (Contact Author)

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

HOME PAGE: http://www.cob.ohio-state.edu/fin/faculty/stulz

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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