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  • February 2017
  • Article
  • Strategic Management Journal

The Throne vs. the Kingdom: Founder Control and Value Creation in Startups

By: Noam Wasserman
  • Format:Print
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Abstract

Does the degree to which founders keep control of their startups affect company value? I argue that founders face a "control dilemma" in which a startup's resource dependence drives a wedge between the startup's value and the founder's ability to retain control of decision making. I develop hypotheses about this tradeoff and test the hypotheses on a unique dataset of 6,130 American startups. I find that startups in which the founder is still in control of the board of directors and/or the CEO position are significantly less valuable than those in which the founder has given up control. On average, each additional level of founder control (i.e., controlling the board and/or the CEO position) reduces the pre-money valuation of the startup by 17.1%–22.0%.

Keywords

Founders; Entrepreneurial Management; Value Creation; Governing and Advisory Boards; Entrepreneurship; Business Startups

Citation

Wasserman, Noam. "The Throne vs. the Kingdom: Founder Control and Value Creation in Startups." Strategic Management Journal 38, no. 2 (February 2017): 255–277.
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More from the Author
  • The First Deal: The Division of Founder Equity in New Ventures By: Thomas F. Hellmann and Noam Wasserman
  • Sales Razor Technologies By: Paul Gompers and Noam Wasserman
  • Career at a Crossroad: Akhil and Roopa By: Noam Wasserman
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