Do Founders Control Start-up Firms that Go Public?
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Date
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
Harvard Business Law Review
Abstract
Black & Gilson (1998) argue that an IPO-welcoming stock market stimulates venture deals by enabling VCs to give founders a valuable "call option on control." We study 18,000 startups to investigate the value of this option. Among firms that reach IPO, 60% of founders are no longer CEO. With little voting power, only half of the others survive three years as CEO. At initial VC financing, the probability of getting real control of a public firm for three years is 0.4%. Our results shed light on control evolution in startups, and cast doubt on the plausibility of the call-option theory linking stock and VC markets.
Description
article published in a business law review
Keywords
control evolution in startups, call-option theory, venture capital, Stock Markets
Citation
10 Harv. Bus. L. Rev. 49 (2020)