May the Force be With You: Investor Power and Company Valuations

May the Force be With You: Investor Power and Company Valuations

Thomas Hellmann, Veikko Thiele

Series number :

Serial Number: 
580/2018

Date posted :

November 20 2018

Last revised :

October 20 2020
SSRN Share

Keywords

  • Staged financing • 
  • valuation • 
  • inside investor • 
  • market power

This paper re-examines the role of investor power in a model of staged equity financing. It shows how the usual effect where market power reduces valuations can be reversed in later rounds. Once they become insiders, powerful investors may use their market power to increase, not decrease valuations.

Even though powerful investors initially lower valuations, companies prefer to bring them inside, to leverage their power in later financing rounds. The paper generates novel predictions about valuations and investor returns. It also explains why unrealized interim returns can be fundamentally misleading.

Authors

Real name:
Veikko Thiele