The First Deal: The Division of Founder Equity in New Ventures
Thomas Hellmann, Noam Wasserman
Management Science · 2017 · Volume 63 · Issue 8
Abstract
We examine the trade-off between efficiency and equality within the context of entrepreneurial founding teams. Using a formal theory where founders may have preferences over relative outcomes, we derive predictions about the antecedents and consequences of dividing equity equally among all founders. Using proprietary survey data, we empirically test the predictions. Our central finding is that teams that split equity equally are less likely to raise funds from outside investors. The relationship appears not to be causal, but instead driven by selection effects across heterogeneous teams with varying degrees of inequality aversion. This paper was accepted by David Hsu, entrepreneurship and innovation .
Keywords
entrepreneurship, economics, behavior and behavioral decision making finance, corporate finance, games-group decisions, bargaining, organizational studies, decision making, research and development, innovation
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