Why do startups become unicorns instead of going public?
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
79 Pages Posted: 19 Jul 2024
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: Suggested Citation