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


  • Thomas Hellmann,

  • Manju Puri

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    • Hellmann is from the Graduate School of Business, Stanford University; Puri is from the Graduate School of Business, Stanford University and NBER. We thank Jim Baron, Diane Burton, and Michael Hannan for their generous permission to access their data; Ali Hortacsu, Vlasta Pokladnik, and Muhamet Yildiz for excellent research assistance; and Rick Green (the editor), Jay Hartzell, Steve Kaplan, Josh Lerner, Per Strömberg, and an anonymous referee for useful comments. We received useful comments from seminar participants at the American Finance Association meetings, New Orleans, Columbia University, Federal Reserve Bank, San Francisco, JFI Symposium, Boston, Law and Entrepreneurship conference, Northwestern Lewis and Clark College, London Business School, London School of Economics, NBER Summer Institute, NYU, Ohio State University, UC Berkeley, UCLA, University of Edmonton, University of Maryland, University of Michigan, University of Washington, St. Louis, Vanderbilt University, and the Wharton School. We are grateful to the Center for Entrepreneurial Studies at the Stanford Graduate School of Business, and the National Science Foundation for financial support. All errors are ours.


This paper examines the impact venture capital can have on the development of new firms. Using a hand-collected data set on Silicon Valley start-ups, we find that venture capital is related to a variety of professionalization measures, such as human resource policies, the adoption of stock option plans, and the hiring of a marketing VP. Venture-capital-backed companies are also more likely and faster to replace the founder with an outside CEO, both in situations that appear adversarial and those mutually agreed to. The evidence suggests that venture capitalists play roles over and beyond those of traditional financial intermediaries.