Authors Brian Broughman and Jesse Fried study founder control in their paper titled, "Do Founders Control Start-Up Firms that Go Public?" In their paper, the authors observe that many founders of startups lose control through the process of raising capital from venture capital funds. The authors debunk the notion that founders regain control over their companies in connection with their companies' IPOs (referred to as the "call option on control" theory). The research shows that the frequency of founder-CEO control at the IPO is around 20% during the sample period considered. After three years following the IPO, 25% of founder-CEOs exit the CEO position for the companies that are still public. The authors also considered voting control held by the founder-CEO. Their research showed that the average founder voting power is 11.1% at the time of the IPO and 6.3% three years following the IPO. Founder voting power was higher for those companies that had received less pre-IPO financing, had undertaken fewer rounds of VC financing, undertook an IPO more quickly from receipt of initial VC financing, and had dual-class structures. Based on the review of more than 18,000 startups that received initial VC financing between 1990 and 2012, the authors concluded that it is highly unlikely that a founder will reacquire even modest control at the IPO that would be durable (lasting more than three years).
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