Start-up founders who have worked countless hours and taken minimal pay to launch their companies understandably look forward to the big payday that comes with an IPO or a sale. So do venture capital or angel investors who risked millions to back a fledging enterprise that could very well go under.
But a study by experts from Wharton and INSEAD shows that IPOs and acquisitions actually dampen a start-up’s innovative spirit — which is often the very reason why it is appealing to investors or a new corporate owner in the first place. Instead of driving start-ups to step up their level of innovation, public scrutiny turns out to have the opposite effect, according to the recent paper, “Entrepreneurial Exits and Innovation,” by Wharton management professor David Hsu and Vikas A. Aggarwal, a professor of entrepreneurship and family enterprise at INSEAD. The study is slated for publication in the journal Management Science.
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