Capital raising and the Professionalization of Start up Firms: Empirical Evidence
History: Beginning with delete word the traditional economic intermediation theory which focus on information-based tasks of financial intermediaries, dealing with the alleviation of moral hazard or perhaps adverse variety. The previous books focused mainly on much larger, more established corporations that were widely listed, or perhaps that are in the process of listing or delisting. The author set out to empirically look at whether venture capitalists may play a role in the professionalization of start up companies with a unique hand-collected data group of over 168 young high-technology firms in Silicon Valley.
Conclusion: The author found that venture capital is related to a variety of professionalization measures, such as human resource plans, the adoption of stock option plans, and the hiring of a marketing VP. Venture-capital-backed companies are likewise more likely and faster to replace the creator with an outdoor CEO, at situations that appear adversarial and those mutually agreed to.
Contribution: The paper is of interest to the growing literature on the theory of organization, providing facts on a problem that has received surprisingly small attention up to now, namely the procedure by which assets are assembled into a fresh firm. The paper leads to the large materials on business governance, which includes tended to focus on large, public companies. In comparison, our analysis shows that the effect of venture capitalists in corporate governance is important particularly when companies are even now private. So we need to know that investors may possibly gather details not merely about firms, but in addition for firms.
Future research: About what extent carry out other economic intermediaries, specifically banks, offer similar support functions? And to what extent does this be based upon the economy (e. g., whether financial institutions can or perhaps cannot keep equity)?
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