Waiting for the Payday? The Market for Startups and the Timing of Entrepreneurial Exit

Ashish Arora*, Andrea Fosfuri, Thomas Rønde

*Corresponding author for this work

Research output: Contribution to journalJournal articleResearchpeer-review

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Most technology startups are set up for exit through acquisition by large corporations. In choosing when to sell, startups face a trade-off. Early acquisition reduces execution errors, but later acquisition both improves the likelihood of finding a better match and benefits from increased buyer competition. Startups’ exit strategies vary considerably: Some startups aim to sell early; others remain in stealth mode by developing the invention for a late sale. We develop an analytical model to study the timing of the exit strategy. We find that startups with more capable founding teams commit to a late exit, whereas those with less capable founding teams commit to an early exit. Finally, startups with founding teams of intermediate capabilities remain flexible: They seek early offers but eventually sell late. If trying the early market is so costly that startups have to make a mutually exclusive choice between an early and late sale, startups sell inefficiently late. Instead, if they can collect early offers at no cost before deciding on the timing of sale, there are too many early acquisitions.
Original languageEnglish
JournalManagement Science
Issue number3
Pages (from-to)1453-1467
Number of pages15
Publication statusPublished - Mar 2021

Bibliographical note

Published online: September 11, 2020.


  • Entrepreneurship
  • Research and development
  • Innovation
  • Industrial organization
  • Market structure
  • Firm strategy
  • Market performance

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