Although previously considered rare, over three hundred startups have reached valuations over a billion dollars. Thousands of smaller startups aim to follow in their paths. Despite the enormous social and economic impact of venture-backed startups, their internal governance receives scant scholarly attention. Longstanding theories of corporate ownership and governance do not capture the special features of startups. They can grow large with ownership shared by diverse participants, and they face issues that do not fit the dominant principal-agent paradigm of public corporations or the classic narrative of controlling shareholders in closely held corporations.
This Article offers an original, comprehensive framework for understanding the unique combination of governance issues in startup companies over their life cycles. It shows that venture-backed startups involve heterogeneous shareholders in overlapping governance roles that give rise to vertical and horizontal tensions between founders, investors, executives, and employees. These tensions tend to multiply as the company matures and increases the number of participants with varied interests and claims. This framework of startup governance offers new insight into issues of current debate, including monitoring failures by startup boards and late-stage governance complexity, and suggests that more attention should be paid to how corporate law principles apply in the startup context.