Common Venture Capital Investors and Startup Growth

Common Venture Capital Investors and Startup Growth

Ofer Eldar, Jillian Grennan

Series number :

Serial Number: 
902/2023

Date posted :

March 13 2023

Last revised :

August 29 2023
SSRN Share

Keywords

  • Entrepreneurship • 
  • Startups • 
  • venture capital • 
  • Corporate governance • 
  • fiduciary duty • 
  • duty of loyalty • 
  • Conflict of interest • 
  • corporate opportunity waivers • 
  • board of directors • 
  • initial public offerings (IPOs) • 
  • Raising Capital

We exploit the staggered introduction of liability waivers when investors hold stakes in conflicting business opportunities as a shock to venture capital (VC) investment and director networks. After the law changes, we find increases in within-industry VC investment and common directors serving on startup boards.

Despite the potential for rent extraction, same-industry startups inside VC portfolios benefit by raising more capital, failing less, and exiting more successfully. VC directors serving on other startup boards are the primary mechanism associated with positive outcomes, consistent with common VC investment facilitating informational exchanges in VC portfolios.

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Published in

Published in: 
Description: 
The Review of Financial Studies (forthcoming)

Authors

Real name:
Jillian Grennan