Executive Replacement in Venture Capital-Backed Startups

Michael Ewens, Matt Marx
2014 Social Science Research Network  
We show that venture capitalists add value in struggling startups by replacing executives. Augmenting a large database of entrepreneurial firm executives with handcollected join/departure dates, we characterize firms that failed to raise their next round of financing within an expected window as "living dead." Executives are approximately three times as likely to be replaced in struggling startups and especially by investors who hold greater board influence and high portfolio performance. Using
more » ... performance. Using plausibly exogenous shocks to the supply of new executives, an instrumental variables analysis implies a positive causal effect of replacement on outcomes for struggling startups. JEL classification: G24, G34, L2, M12.
doi:10.2139/ssrn.2520648 fatcat:qbcnrx2htrfazaos5optkpn2me