Working Paper: CEPR ID: DP15024
Authors: Michael Ewens; Nadya Malenko
Abstract: We explore the dynamics of venture capital (VC)-backed startup boards using novel data on director entry, exit, and characteristics. At formation, a typical board is entrepreneur-controlled. Independent directors join the median board after the second financing and hold a tie-breaking vote. Their presence is particularly likely when potential VC-entrepreneur conflicts are larger. At later stages, control switches to VCs and independent director characteristics change. These patterns align with key financial contracting theories, but also highlight unique roles of independent directors over the life cycle: mediation followed by advising. Independent directors thus represent another potential source of value-add to startup performance.
Keywords: venture capital; corporate governance; board of directors; independent directors; allocation of control; mediation role
JEL Codes: G24; G34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Startup life cycle progression (L26) | Shift in control from entrepreneurs to VCs (G34) |
| Independent directors (G34) | Mediation of conflicts between VCs and entrepreneurs (D74) |
| Introduction of AWS (Y20) | Reduction in likelihood of VC control (G34) |
| Introduction of AWS (Y20) | Increase in likelihood of entrepreneur control (L26) |
| Entrepreneur control (M13) | Switch to shared control (Y70) |
| Shared control (J54) | Switch to VC control (E61) |