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Delaware Law As Lingua Franca: Theory And Evidence, Brian Broughman, Jesse Fried, Darian Ibrahim
Delaware Law As Lingua Franca: Theory And Evidence, Brian Broughman, Jesse Fried, Darian Ibrahim
Vanderbilt Law School Faculty Publications
Why would a firm incorporate in Delaware rather than in its home state? Prior explanations have focused on the inherent features of Delaware corporate law, as well as the positive network externalities created by so many other firms domiciling in Delaware. We offer an additional explanation: a firm may choose Delaware simply because its law is nationally known and thus can serve as a “lingua franca” for in-state and out-of-state investors. Analyzing the incorporation decisions of 1,850 VC-backed startups, we find evidence consistent with this lingua-franca explanation. Indeed, the lingua-franca effect appears to be more important than other factors that …
Carrots & Sticks: How Vcs Induce Entrepreneurial Teams To Sell Startups, Brian Broughman, Jesse Fried
Carrots & Sticks: How Vcs Induce Entrepreneurial Teams To Sell Startups, Brian Broughman, Jesse Fried
Vanderbilt Law School Faculty Publications
Venture capitalists (VCs) usually exit their investments in a startup via a trade sale. But the entrepreneurial team – the startup’s founder, other executives, and common shareholders – may resist a trade sale. Such resistance is likely to be particularly intense when the sale price is low relative to VCs’ liquidation preferences. Using a hand-collected dataset of Silicon Valley firms, we investigate how VCs overcome such resistance. We find, in our sample, that VCs give bribes (carrots) to the entrepreneurial team in 45% of trade sales; in these sales, carrots total an average of 9% of deal value. The overt …