Carrots and Sticks : How VSC Induce Entrepreneurial Teams to Sell Startups

Content Provider	Semantic Scholar
Author	Broughmant, Brian Friedtt, Jesse M.
Copyright Year	2013
Abstract	Venture capitalists (VCs) usually exit from their investments in a startup via a trade sale. But the startup’s entrepreneurial team—the startup’s founder, other executives, and common shareholders—may resist a trade sale. Such resistance is likely to be particularly intense when the sale price is low relative to the VCs’ liquidation preferences. Using a hand-collected dataset of Silicon Valley firms, we investigate how VCs overcome such resistance. We find, in our sample, that VCs give bribes (carrots) to the entrepreneurial team in 45% of trade sales; in these sales, carrots total an average of 9% of deal value. The overt use of coercive tools (sticks) occurs, but only rarely. Our study sheds light on important but underexplored aspects of corporate governance in VC-backed startups and the venture capital ecosystem.
File Format	PDF HTM / HTML
Alternate Webpage(s)	https://www.repository.law.indiana.edu/cgi/viewcontent.cgi?article=2282&context=facpub
Alternate Webpage(s)	http://cornelllawreview.org/files/2013/10/98CLR1319.pdf
Alternate Webpage(s)	http://scholarship.law.cornell.edu/cgi/viewcontent.cgi?article=3281&context=clr
Language	English
Access Restriction	Open
Subject Keyword	Carrots - dietary Shadow Copy
Content Type	Text
Resource Type	Article