Are Team-founded Ventures More Likely to be Acquired?

Abstract

Given the vibrant market for the acquisitions of new ventures, identifying the determinants of these acquisitions is an important question for practitioners and academics alike. We investigate whether team ventures are more likely to be acquired than single-founder ventures, and if so, attempt to determine what number of founders, or team size, is associated with the highest acquisition likelihood. Using the Kauffman Firm Survey (KFS) panel data, our results indicate that team-founded new ventures are 42% more likely to be acquired, and that there is an inverted U-shaped relationship between team size and acquisition likelihood. However, a more rigorous look at the data reveals that the inverted U-shaped relationship suggested by the regression results is driven by data points associated with very large teams, the incidence of which is too rare to provide reliable estimates. If we focus only on single digit team sizes for which the data is more abundant (especially up to 4-5 team members), a positive relationship between team size and acquisition likelihood is observed. The hypothesized inverted U-shaped relationship cannot be supported, most likely because new ventures self- select out of cumbersome team sizes.