Working Paper: NBER ID: w29532
Authors: Michael Ewens; Joan Farremensa
Abstract: The U.S. entrepreneurial finance market has changed dramatically over the last two decades. Entrepreneurs raising their first round of venture capital retain 30% more equity in their firm and are more likely to control their board of directors. Late-stage startups are raising larger amounts of capital in the private markets from a growing pool of traditional and new investors. These private market changes have coincided with a sharp decline in the number of firms going public—and when firms do go public, they are older and have raised more private capital. To understand these facts, we provide a systematic description of the differences between private and public firms. Next, we review several regulatory, technological, and competitive changes affecting both startups and investors that help explain how the trade-offs between going public and staying private have changed. We conclude by listing several open research questions.
Keywords: No keywords provided
JEL Codes: G23; G24; G28; G34; G38
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Regulatory Changes to Capital Raising (G18) | Supply of Late-Stage Private Capital (D25) |
| Technological Innovations (O39) | Financing Needs of Startups (M13) |
| Supply of Private Capital (F21) | Competition for Startups (M13) |
| Bargaining Power of Founders (L14) | Delay in Going Public (G24) |
| Disclosure Costs (G24) | Attractiveness of Remaining Private (H42) |
| Market Dynamics (D49) | Exit Strategies of Startups (M13) |