Backing the Right Jockey? Founder Traits and Early-Stage Funding in Digital Entrepreneurship

Abstract

In digital ecosystems, startups operate in a dynamic business and technology environment, where the effect of founder backgrounds and personality traits are more relevant at the early stage of capital infusion. Using theories of human capital and signaling, we study whether and how human capital signals of education, professional experience and personality traits of the founders influence early-stage venture capital (VC) investment in digital startups. We argue that in the digital sector, founders are expected to demonstrate agility through the practice of strategic flexibility in order to build a sustainable competitive advantage. Our empirical analysis uses micro-level data about firms, early-stage investment and entrepreneurs in addition to transcribed investor interviews about digital startups from USA, India, Russia, Brazil, China, and Israel between 2012 and 2018. We conclude that founders with many years of professional experience and with fewer career-changes attract higher investments at the early-stage compared to other founders. Similarly, digital startups with founders who were educated in foreign countries and with educational degrees from premier institutes attracted higher early-stage investment. We classify founders based on human capital signals and discover heterogeneity among these groups with respect to investment in different countries.