Founding Teams and Startup Performance
November 2019
Working Paper Number:
CES-19-32
Abstract
We explore the role of founding teams in accounting for the post-entry dynamics of startups. While the entrepreneurship literature has largely focused on business founders, we broaden this view by considering founding teams, which include both the founders and the initial employees in the first year of operations. We investigate the idea that the success of a startup may derive from the organizational capital that is created at firm formation and is inalienable from the founding team itself. To test this hypothesis, we exploit premature deaths to identify the causal impact of losing a founding team member on startup performance. We find that the exogenous separation of a founding team member due to premature death has a persistently large, negative, and statistically significant impact on post-entry size, survival, and productivity of startups. While we find that the loss of a key founding team member (e.g. founders) has an especially large adverse effect, the loss of a non-key founding team member still has a significant adverse effect, lending support to our inclusive definition of founding teams. Furthermore, we find that the effects are particularly strong for small founding teams but are not driven by activity in small business-intensive or High Tech industries.
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:
enterprise,
corporation,
organizational,
corporate,
ownership,
acquisition,
entrepreneurial,
startup,
venture,
proprietorship,
entrepreneur,
entrepreneurship,
shareholder,
proprietor,
funding,
founder
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Internal Revenue Service,
Company Organization Survey,
Longitudinal Business Database,
Employer Identification Numbers,
North American Industry Classification System,
Longitudinal Employer Household Dynamics,
Business Register,
W-2,
Census Bureau Disclosure Review Board,
Disclosure Review Board,
Indian Health Service,
George Mason University
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