Do Founders Control Start-Up Firms that Go Public?

Do Founders Control Start-Up Firms that Go Public?

Jesse Fried, Brian Broughman

Series number :

Serial Number: 

Date posted :

May 14 2018

Last revised :

February 22 2021
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  • Startups • 
  • Founders • 
  • venture capital • 
  • VC • 
  • IPOs • 
  • stock markets • 
  • innovation • 
  • Entrepreneurs • 
  • venture capitalists • 
  • Corporate governance • 
  • CEO • 
  • shareholders • 

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.

Published in

Published in: 
Publication Title: 
Harvard Business Law Review, Vol. 10, 2020


Real name:
Brian Broughman
Indiana University Maurer School of Law