Finance and Accounting Research Seminar with Professor Michael Ewens

Irreplaceable Venture Capitalists

We provide causal evidence on how individual venture capitalists (VCs) add value to startups, using exogenous deaths of VC directors on startup boards. Losing a VC director increases the probability of startup failure, delays a successful exit, and reduces the IPO likelihood. Affected startups that raise capital after a director loss obtain a narrower investor base. These effects persist after the replacement of deceased VCs, indicating the importance of the original deal experts for startup survival, financing, and going public. In contrast, losing a VC director does not affect recruitment, product development, and CEO replacement, suggesting that these skills are replicable. Overall, a VC’s network and reputation are key irreplaceable assets.