Dance with the one that brought you? Venture capital firms and the retention of founder‐CEOs

Abstract

We consider how a venture capital fi rm's perceived uncertainty in new and uncertain industry environments affects its decisions to retain founder-CEOs at companies they take public. We further consider how the human capital of the founder-CEO, the overall experience of the venture capital fi rm (VCF), and the VCF's specifi c experience with the new industry moderate the relationship between industry-based uncertainty and founder-CEO retention. We explore these issues in the context of 340 venture capital fi rm investments in Internet sector start-ups that went public from 1995 to 2000. We fi nd evidence that industry-based uncertainty decreases the likelihood of founder-CEO retention, that founder-CEO human capital and VCF Internetsector experience decreases the effects of these uncertainties on founder-CEO retention for business-to-business (B2B) fi rms, but increases them for business-to consumer (B2C) fi rms,and that VCF age further decreases the likelihood that the founder-CEOs of B2C fi rms will be retained.

Serial Entrepreneurs and Venture Survival: Evidence from U.S. Venture-Capital-Financed Semiconductor Firms

“…This measure represents the log of the total number of investments made by a VC firm prior to the time of investment in the focal entrepreneurial venture. Alternatively, I used the log of a VC firm's age, in the spirit of Pollock et al (2009), but the results are qualitatively similar.…”

“…That is, I do not know how much of the venture performance can be attributed to the fact that better VCs are adding more value to the venture that they are financing or to the fact that better VCs are able to select better ventures (or entrepreneurs) to begin with. This study uses a control variable that measured VC investors' experience, in accordance with prior studies (Gompers et al, 2010;Pollock et al, 2009), but the two effects (i.e., VC's selection and value-adding effect) are lumped together in this measure. Future research should focus on developing readily applicable measures that allow for capturing VC firms' value-adding ability and selection ability separately, which would provide significant contributions to entrepreneurship studies.…”

“…Prior studies have included this location variable to account for the fact that ventures located in California may be geographically closer to many of the VC firms, which may result in greater supervision and VC firm involvement in the venture's affairs (Pollock, Fund, and Baker, 2009).…”

Gender, ethnicity and entrepreneurship in initial public offerings: illustrations from an open database*

“…There is evidence that retention may also be higher for the technical founders than for the general managers, though this has not been tested on a large sample of IPOs (Boeker and Karichalil, 2002). Pollock et al (2009) found that CEO-founders were more likely to be present at the IPO when there was greater business certainty in the particular sector. Put differently, when the sector was competitive and uncertain the founder was less likely to be CEO at the time of the IPO.…”

Signaling Type and Post‐IPO Performance

“…Our motivation is choosing this signal also stems from the divided empirical evidence on the issue of founders’ influence on post‐IPO performance (Pollock et al ., ). For example, Certo et al .…”