The Private Value of Entrepreneurial Control: Evidence from a Discrete Choice Experiment

Abstract

We study how much entrepreneurs value being in control over their ventures. Even though control and independence are widely believed to be an important reward to entrepreneurship, and despite the importance of control rights for venture capital contract design, how much entrepreneurs value being in control remains unknown. In this article, we perform a discrete choice experiment with a representative sample of entrepreneurs in Germany to estimate the value of control in the setting of venture capital investment. We find that entrepreneurs highly value control: entrepreneurs are willing to pay an additional 38% of equity to avoid the highest level of control, a voting majority, in a hypothetical VC contract. We also find that entrepreneurs are willing to pay more equity when the VC can offer support in the development in the firm, up to 12% of equity when the investor offers market access support. Our findings hint that control requirements form important entry barriers for entrepreneurs to venture capital financing.