Founder-CEO Compensation and Selection into Venture Capital-Backed Entrepreneurship

Michael Ewens, Ramana Nanda and Christopher Stanton
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Michael Ewens: California Institute of Technology

No rku3m_v1, SocArXiv from Center for Open Science

Abstract: We show theoretically that a critical determinant of the attractiveness of 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 non-diversifiable 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: 2020-05-20
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Related works:
Working Paper: Founder-CEO Compensation and Selection into Venture Capital-Backed Entrepreneurship (2023)
Working Paper: Founder-CEO Compensation and Selection into Venture Capital-Backed Entrepreneurship (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:osf:socarx:rku3m_v1

DOI: 10.31219/osf.io/rku3m_v1

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