Different Aspects of the Composition of Nascent Entrepreneurial Teams

Abstract

This dissertation is a collection of three stand-alone research papers written as part of the doctoral program in Quantitative Economics and Finance at the University of Konstanz during my time as a research assistant at the University of Vienna.The focus of previous research on entrepreneurship has been almost exclusively on solo entrepreneurs and their individual characteristics and behaviors (Gartner, 1988; Birley and Stockley, 2000). The number of studies using teams as the unit of analysis is small (Davidsson and Wiklund, 2001; Chowdhury, 2005). And remarkably little attention has been paid to teams during the time that they are engaged in the entrepreneurial organizing activities. However, a large proportion of all newly founded ventures are started by teams (Ruef, Aldrich, and Carter, 2003). The literature on organizational and team behavior acknowledges the importance of team composition for business outcomes. The complex interactions among team members affect the behavior of each individual team member and therefore the performance of the team as a whole (e.g. Williams and O Reilly, 1998). Accordingly, results from previous studies on solo entrepreneurs who create start-ups are not transferable to teams that do the same thing. This dissertation closes a gap in research on start-up teams while they are engaged in the process of creating new businesses. The present section provides a brief introduction to the following chapters and summarizes the main results.Chapter 1 is based on the research paper Formation of Nascent Entrepreneurial Teams: What Role Does the Level of Human Capital Play? and analyzes the composition of nascent entrepreneurial teams according to individual levels of human capital. Classic human capital theory and signaling theory both posit a positive relationship between human capital and the successful completion of entrepreneurial organizing activities. The empirical analyses confirm these theoretical insights by indicating a highly significant positive relationship between the levels of human capital in entrepreneurial teams and the probability of completing the process of new business creation. Upon this finding, this chapter builds two other insights on how nascent entrepreneurial teams are built, based on human capital levels of potential co-founders. The first insight is that nascent entrepreneurs look for cofounders whose level of human capital is very close to theirs. The second contribution is that the heterogeneity in human capital levels within start-up teams derives primarily from co-founders who have close social ties, such as relatives.Chapter 2 originated as a research paper written together with Dr. Christian Hopp (University of Vienna) and entitled Entrepreneurial Team Composition: It s Not Just What You Know, but also How Long You ve Known the Co-Founders! This chapter analyzes the compositions of start-up teams, and finds that persistent heterogeneity in levels of human capital is accompanied by high levels of social cohesion; considerations such as trust and shared understanding may be as important as pure human capital. Human and social capital cannot substitute for each other, but rather, the founder who exhibits a higher level of human capital satisfies the social capital needs for the new venture by enlisting members of his own social network. Individuals of higher ability also provide greater amounts of financial capital. This corroborates the observation that founders can strengthen their role within the venture by aligning managerial inputs with potential financial rewards and decision-making rights.Chapter 3 comes from the research paper Understanding the Dynamics of Nascent Entrepreneurship: Is It What You Know, or What You Do, or Both?, another joint project with Dr. Hopp. This study analyzes the determinants underlying the process of creating a new business. It examines whether several elements of nascent entrepreneurs human capital - formal education, labor market experience, and entrepreneurial experience - influence the rate of accomplishing the entrepreneurial activities, the tendency to concentrate these activities, and the overall timing of start-up activities. Moreover, the design of the founding process of new ventures and the level of human capital of the nascent entrepreneurs are linked with the likelihood of success. The results provide strong evidence that the most valuable type of human capital for new venture emergence is high task-related knowledge, such as entrepreneurial or labor market experience, while human capital has neither a direct nor indirect effect on the likelihood of successful venture creation when it consists of low task-related knowledge such as formal education.