Venture Capital and the Professionalization of Start-up Firms: Empirical Evidence

This paper examines empirical evidence on the impact that venture capitalists have on the development path of new firms. We use a hand-collected data set on Silicon Valley start-up companies that allows us to "look inside the black box" and analyze the influence of venture capital on the professionalization of firms' internal organization. The evidence suggests that there is a "soft" facet to venture capitalists, in terms of supporting companies to build up their human resources within the organization. Venture capital is also important at the top, in that venture capital backed companies are more likely and faster to bring in outsiders as CEOs. These CEO replacements are often accompanied with the founder departing from the company, suggesting that venture capitalists also exhibit a "hard" facet in terms of exercising control. The paper examines how these various roles are interrelated, and show how the role of venture capital varies with the state of the company.