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Founders' Characteristics, Venture Capital Syndication and Governance in Entrepreneurial IPOs

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Abstract

Using a unique sample of 444 entrepreneurial IPOs in the UK and France this paper examines links between founders' characteristics, venture capital (VC) syndication and the development of effective boards in entrepreneurial firms. It argues that VC-backed IPOs suffer from two sets of agency problems which are related to principal-agent and principal-principal relationships between the founders and members of the VC syndicate. The empirical evidence shows that there is a curvilinear relationship between the intensity of founders' external ties and VC syndication. Founders' retained share ownership is negatively associated with VC syndication. We also find that in syndicated IPOs there is a higher involvement of passive private equity firms and “business angels” investing alongside VC firms, both in terms of their number and equity presence. VC-syndicated IPOs have more independent boards than IPOs with no VC involvement. Board independence is negatively associated with founders' retained equity. These results are consistent with the assumption that board independence is used to mitigate agency costs associated with VC involvement in IPO firms. Our findings also identify significant differences in governance characteristics between the UK and France. While French IPOs have less independent boards, they involve more VC backing in general and syndicated VC funding in particular, than UK IPOs.

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Authors and Affiliations

  1. King's College London, 150 Stamford Street, SE1 9NN, London

    Igor Filatotchev

  2. School of Business, American University of Beirut, Bliss Street, 11-0236, Beirut, Lebanon

    Salim Chahine

  3. Centre for Management Buy-out Research, Nottingham University Business School, NG8 1BB, Nottingham

    Mike Wright

  4. Bradford University School of Management, Emm Lane, BD9 4JL, Bradford

    Mufit Arberk

Authors
  1. Igor Filatotchev
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  2. Salim Chahine
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  3. Mike Wright
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  4. Mufit Arberk
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Correspondence to Igor Filatotchev.

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Filatotchev, I., Chahine, S., Wright, M. et al. Founders' Characteristics, Venture Capital Syndication and Governance in Entrepreneurial IPOs. Entrepreneurship Mgt. 1, 419–439 (2005). https://doi.org/10.1007/s11365-005-4771-x

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