Founder-CEO compensation and selection into venture capital-backed entrepreneurship
File(s)
Accepted version
Author(s)
Ewens, Michael
Nanda, Ramana
Stanton, Christopher
Type
Journal Article
Abstract
We show theoretically that a critical determinant of the attractiveness of venture capital (VC)-backed entrepreneurship for high-earning potential founders is the expected time to develop a startup's initial product. This is because founder-CEOs' cash compensation increases substantially after product development, alleviating the nondiversifiable risk that founders face at startup birth. Consistent with the model's predictions of where the supply of entrepreneurial talent is likely to be most constrained, we find that technological shocks differentially altering the expected time to product across industries can explain changes in both the rate of entry and characteristics of individuals selecting into VC-backed entrepreneurship.
Date Issued
2024-10-01
Date Acceptance
2023-06-23
Citation
The Journal of Finance, 2024, 79 (5), pp.3361-3405
ISSN
0022-1082
Publisher
Wiley
Start Page
3361
End Page
3405
Journal / Book Title
The Journal of Finance
Volume
79
Issue
5
Copyright Statement
© 2024 the American Finance Association.
Identifier
https://onlinelibrary.wiley.com/doi/full/10.1111/jofi.13383
Publication Status
Published
Date Publish Online
2024-08-22