Common Venture Capital Investors and Startup Growth
Series number :
- 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. We find increases in within-industry VC investment and common directors serving on startup boards after the law changes.
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.