Venture capital and the delegation of decision authority in startups: an exploratory study

Vincenzo Butticè (), Massimo G. Colombo () and Paola Rovelli ()
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Vincenzo Butticè: Politecnico di Milano, School of Management
Massimo G. Colombo: Politecnico di Milano, School of Management
Paola Rovelli: Free University of Bozen-Bolzano

Economia e Politica Industriale: Journal of Industrial and Business Economics, 2024, vol. 51, issue 4, No 5, 893-923

Abstract: Abstract We study the delegation of authority over strategic decisions in startups and how it relates to venture capital (VC) investment through a mixed-methods study. We first show that startups typically centralize decision authority. The extent of delegation is higher if startups are VC-backed. In startups backed by corporate VC investors the aim is to leverage the unique knowledge possessed by entrepreneurial team members in a context characterized by low principal-principal agency costs. In those backed by independent VC investors, the increase in delegation is paired with the emergence of a polyarchy and decoupling between the formal and real organizations. In this situation delegation may serve as a control mechanism aligning the actions of startups with the interests of the VC investors.

Keywords: Startups; Decision authority; Delegation; Venture capital; Control; L22; L26; G24 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s40812-024-00313-4

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