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Full-Text Articles in Securities Law
Do Founders Control Start-Up Firms That Go Public?, Brian Broughman, Jesse M. Fried
Do Founders Control Start-Up Firms That Go Public?, Brian Broughman, Jesse M. Fried
Articles by Maurer Faculty
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 …