Working Paper: NBER ID: w27769
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, when control becomes shared, and hold a tie-breaking vote. Their presence is particularly likely when the potential for VC-entrepreneur conflicts is higher. At later stages, control switches to VCs and independent director characteristics change. These patterns are consistent with independent directors playing both a mediating and advising role over the startup life cycle, and thus representing another potential source of value-add to startup performance.
Keywords: venture capital; startup boards; independent directors; board control dynamics
JEL Codes: G24; G34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Transition of board control from entrepreneurs to VCs (G34) | Mediated by independent directors (G34) |
| VC bargaining power (L14) | Allocation of board control (G34) |
| Introduction of AWS (Y20) | Increased likelihood of entrepreneur control (L26) |
| Introduction of AWS (Y20) | Decreased likelihood of VC control (G34) |
| Presence of independent directors (G34) | Conflicts between VCs and entrepreneurs (G34) |