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VC Ownership Stakes

For Startups, It Pays to Partner With a High-Quality VC, Even If You Give Up Some Equity

Arthur Korteweg, University of Southern CaliforniaAugust 25, 2021November 17, 2021
business start-up
Sections
  • Business
Topics
  • Business Growth
  • Business Strategy
  • Entrepreneurship

The number of venture capital (VC) funds has exploded in recent years, giving entrepreneurs more options than ever to finance their startups. There are now close to 2,000 VC firms in the U.S. alone, with over $54 billion invested in early-stage startups each year. Finding the right VC to partner with can be make or break for a young company, determining how much money it raises and the advice, networking and resources it gains access to. How can entrepreneurs identify the best VC for their company and avoid becoming one of the vast majority of startups that don’t make it?

When fundraising, entrepreneurs sometimes have their vision muddied by the desire to keep as much equity as possible, hoping to maintain greater control and the possibility of a bigger payoff down the line. However, my research as a professor at the University of Southern California’s Marshall School of Business shows that VC quality is much more important than equity share or other contract terms. In a recent study, my colleagues and I found that the highest-caliber VCs offer founders a smaller slice of a bigger pie, taking more equity but nearly doubling the value of their companies compared to lower-quality VCs.

Read the full article at Entrepreneur.

This article was produced by Footnote in partnership with USC Marshall School of Business.

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Contributed by

Arthur Korteweg

Arthur Korteweg

Jorge Paulo and Susanna Lemann Chair in Entrepreneurship, School of Business
Associate Professor of Finance and Business Economics
University of Southern California

Arthur Korteweg is a financial economist whose research interests include corporate finance, private equity, and alternative assets more generally. His corporate finance work aims to quantify the costs and benefits of leverage and the determinants of corporate capital structures.

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