Article
Do Founders Control Start-up Firms that Go Public?
10 Harvard Business Law Review 49 (2020)
Document Type
Article
Publication Date
1-1-2020
Disciplines
- Law and
- Securities Law
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.
Citation Information
Brian Broughman and Jesse M. Fried. "Do Founders Control Start-up Firms that Go Public?" 10 Harvard Business Law Review 49 (2020) (2020) Available at: http://works.bepress.com/brian-broughman/3/