Network effects and entrepreneurial exit
Abstract
We model the influence of network effects on an entrepreneur’s decision to pursue an Initial Public Offering (IPO) or exit via an asset sale. Our model shows that strong network effects (in the entrepreneur’s product market) make an asset sale a more attractive exit strategy. This effect requires that there is a potential acquiring firm whose product also has strong network effects. Our model helps explain the propensity of new ventures to sell out rather than pursue an IPO as well as the high acquisition appetites of network firms such as Meta.
Fields of Study & Subjects
Private Equity and Venture Capital
Corporate Finance and Governance
Digital Platforms and Economics
Publication details
- Journal / source
- Finance Research Open
- Volume
- 2
- Issue
- 1
- Pages
- 100097–100097
- Publication date
- 3 February 2026
- Language
- EN