Footnote:
In: Review of Financial Economics, Vol. 31, No. 4, 2018
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments May 15, 2017 erstellt
Description:
We provide causal evidence that venture capitalists (VCs) improve the performance of their portfolio companies by replacing founders. Augmenting a database of U.S.-based, VC-backed startups founded from 1995-2008 with hand-collected information regarding turnover, we exploit shocks to the supply of outside executives via 14 state-level changes to the enforceability of employee non-compete agreements. Although naive regressions of startup performance on founder replacement would suggest a negative correlation, this may be due to selection as founders are likely to leave or be pushed out of poorly-performing startups. Indeed, instrumented regressions reverse the sign of this e ect, suggesting that replacing founders instead improves the performance of venture-backed startups. Replacement helps more when founders are C-level executives or when they leave the startup after relinquishing their role. The evidence points to the replacement of founders as a specific mechanism by which VCs add value