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Black & Gilson (1998) argued 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 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.
Alibaba, the e-commerce giant that completed a record-setting IPO in the United States in 2014 and was valued at over $700 billion in early 2021, is one of...
Dynastic-controlled firms are led by founding family CEOs while the family owns an insignificant share of equity (defined as less than five percent)....