How Do Founding Teams Form? Toward a Behavioral Theory of Founding Team Formation

We advance entrepreneurship research by developing a theoretical model of how founding teams form and dynamically evolve via episodic addition and exit of cofounders. Our neo-Carnegie model situates founders in particular network-structural milieu, engaging in aspiration-driven search for and evaluation of prospective cofounders. Founding team formation is a consequence of mutually favorable evaluations in a multi-sided matching process. Founding team churn emerges as a consequence of shifting dominant coalition dynamics driven by organic venture evolution and intentional changes in strategic direction. Our multi-level model provides new insights on formation pathways of founding teams – both prior and subsequent to opportunity identification, teams’ initial task and relational endowments and their dynamic evolution.

We advance organization theory by developing a conceptual model of how founding teams form. Our neo-Carnegie model situates founders in particular network-structural milieu, engaging in aspiration-driven search for and evaluation of prospective cofounders. Founding team formation is a consequence of mutually favorable evaluations in a multi-sided matching process. Our multi-level model provides new insights on the formation pathways of founding teams and their initial task and relational endowments, and it draws new links between neo-Carnegie theory and the literature on social cognition. Our central proposition is that founding teams formed prior to opportunity identification are qualitatively different from teams formed post opportunity identification.

Recent research has highlighted the endogenous relationship of founders and founding teams: founders impact new venture performance both through their direct effect and through the team they construct. However, there is very little research opening up the black box of the knowledge complementarities of founders and founding teams and exploring the consequences of founders’ team composition decisions. In this symposium, we bring together scholars who are at the frontier of exploring the relationship between founders and their founding teams in knowledge-based entrepreneurial contexts. The four complementary presentations explore the antecedents and consequences of founding team formation, with particular emphasis on the context of academic entrepreneurship. Organizational Bureaucracy and the Structure of Entrepreneurial Founding Team/Employees Presenter: Jing Chen; Copenhagen Business School Presenter: Toke Reichstein; Copenhagen Business School Presenter: Michael Roach; Cornell U. The Role of the Founding Team in Explaining High-Tech New Venture Strategy Presenter: Anneleen Van Boxstael; Ghent U. Presenter: Mike Wright; Imperial College London Knowledge Contexts of New Ventures: Composition and Performance of Industry-Academic Hybrid Spinou Presenter: Alena Denise Marand; The Ohio State U. Presenter: Florence E M Honore; U. of Minnesota Presenter: Rajshree Agarwal; U. of Maryland Presenter: Benjamin A. Campbell; The Ohio State U. Stars and their Constellations: Great Person or Great Team? Presenter: Janet E.L. Bercovitz; U. of Illinois at Urbana-Champaign Presenter: Maryann P Feldman; U. of North Carolina, Chapel Hill Presenter: Denisa Mindruta; HEC Paris

This paper explores the influences of founding team diversity on team performance. Drawing on studies in the diversity literature, this paper suggests that successful founding team formation is under the influences of actual and perceived team diversity at both surface and deep levels. It proposes that deep-level diversity among founders is not unfolded at the early stage; therefore surface-level diversity impacts outcome of team formation, a relationship moderated by interpersonal feelings. Strong interpersonal feelings stimulate founder collaboration, resulting in successful founding team formation.

How does the relationship between founding team composition and venture performance depend on the venture’s strategy and business environment? Using data from a novel survey of 2,067 firms, we show that while diverse founding teams tend to exhibit higher performance, this is not universally true. We find that founding teams that are diverse are likely to achieve high performance in a competitive commercialization environment. On the other hand, technically-focused founding teams are aligned with a cooperative commercialization environment and when the enterprise pursues an innovation strategy. These results are robust to corrections for endogenous team formation concerns. The findings suggest that ventures cannot ignore founding team composition and expect to later professionalize their top management teams to align with their strategy and environment.

We used a cross-country sample of more than 9,000 startup ventures from over 100 countries to examine the relationship between the cultural diversity in the founding team and the likelihood of admission into impact-oriented acceleration programs. Building on signaling theory, we hypothesized that the formation of multi-cultural founding teams sends a signal from the applicants to the decision-makers of social impact accelerators. The results confirm this hypothesis, showing that cultural diversity has a positive and statistically significant association with the likelihood of being admitted. This finding is robust across several specifications and accounts for the potential endogeneity of cultural diversity. In further analysis, we examined whether and how cultural diversity interacts with other signals concerning the human capital and demographical characteristics of the founding team. We found that these signals not only have an individual effect on the admission likelihood, but their interaction effects are also statistically significant.

How does the relationship between founding team composition and venture performance depend on the venture's strategy and business environment? Using data from a novel survey of 2,067 firms, we show that while diverse founding teams tend to exhibit higher performance, this is not universally true. We find that founding teams that are diverse are likely to achieve high performance in a competitive commercialization environment. On the other hand, technically focused founding teams are aligned with a cooperative commercialization environment and when the enterprise pursues an innovation strategy. These results are robust to corrections for endogenous team formation concerns. The findings suggest that ventures cannot ignore founding team composition and expect to later professionalize their top management teams to align with their strategy and environment . Copyright © 2013 John Wiley & Sons, Ltd.

PurposeThis paper brings in relevant entrepreneurial behavior theory to understand the ownership decisions founders make during the nascent stage of new venture creation, and how such decisions impact the viability of the firm.Design/methodology/approachThe authors examine the behavior and decision making of 137 lead founders during the nascent stage of new venture creation. Psychological ownership and environmental uncertainty are measured of lead founders when dividing up firm ownership among the founding team. Using a longitudinal approach, these nascent-stage decisions are then analyzed to understand the impact on the new venture one year later.FindingsCounter to prior research suggesting teams are better off with identical wages and ownership, the authors find such harmony (i.e. “kumbaya”) pursuit to be a detriment to new venture emergence. Specifically, this study finds that nascent ventures are better off with an unequal ownership split among the founding team members. These findings suggest that nascent firms with an unequal split are more likely to move beyond the nascent stage and launch a functional business.Research limitations/implicationsAlthough the results of this study offer a valuable contribution to lead founders and new businesses, the study looked at each startup independent of another and is therefore not able to draw any conclusions related to competitiveness.Practical implicationsLead founders and founding teams frequently divide ownership evenly among the founders. This paper shows that, while convenient, the decision to divide ownership equally can hamper a nascent firm as it moves toward the launch phase of the startup process. These results should motivate founders to think deeply regarding the ownership structure decision and, at the very least, consider the possible negative costs associated with the pursuit of founding team unity.Originality/valueWhile scholars have brought attention to the nascent stage, few have identified and analyzed the decisions that take place during this critical time of the new venture development process. Furthermore, even is less is known of the impact nascent decisions have on startup launch. This study sheds light on these areas.

This paper is motivated by the movement of foreign-born entrepreneurs out of ethnic enclaves and into the mainstream, globally-connected economies of the countries of immigration, and from necessity to opportunity entrepreneurship. The theoretical contribution of the paper is to integrate the emerging literature on foreign-born entrepreneurship with work on the composition and impact of founding teams. Empirically, we draw on original quantitative and qualitative data on the U.S. high-tech sector. We find that homophily drives team formation and that nationality diversity in founding teams has a modest impact on firm performance.

Founding teams of new firms frequently come from a common employer. We model the formation of founding teams and the entry of their new firms—employee spinoffs—b y extending the theory of job matching and employer learning to learning also among employees. Employees build social capital as they learn about their colleagues’ suitable c haracteristics to start a spinoff firm. For spinoff firms, our model predicts that the separation ha zard is lower among founding team members than among workers hired from outside at founding and, most notably, that this difference shrinks with worker tenure at the firm. For pare nt firms, a version of our model predicts that a worker’s departure hazard to join a spinoff initially increases with worker tenure at the parent, whereas the separation hazard for conventional quits and layoffs decreases with worker tenure as in the canonical employer learning model. All these predictions are clearly supported in Brazilian data for the period 1995-2001. Calibration of our dynamic model indicates that employee spinoffs raise the share of workers in Brazil’s private sector known to be of high match quality by 3.2 percent.

This article explores the critical role of human resources (HR) leadership in founding and establishing educational start-ups. The article examines three key dimensions: (a) the formation and selection of founding teams, (b) the development of organisational culture and values in early-stage institutions, and (c) practical challenges and strategies for HR leaders in educational start-ups. The findings reveal that successful founding teams prioritise chemistry and complementary skills over technical competencies alone, that organisational values should emerge organically after basic systems are established, and that HR leaders in educational start-ups must possess multi-functional capabilities beyond traditional HR domains. The article provides actionable insights for founders and HR professionals entering the educational start-up ecosystem.

Contents: Acknowledgements Introduction Mike Wright and Iris Vanaelst PART I TEAM FORMATION AND COMPOSITION 1. Judith B. Kamm and Aaron J. Nurick (1993), 'The Stages of Team Venture Formation: A Decision-Making Model' 2. Christine M. Beckman (2006), 'The Influence of Founding Team Company Affiliations on Firm Behavior' 3. Martin Ruef, Howard E. Aldrich and Nancy M. Carter (2003), 'The Structure of Founding Teams: Homophily, Strong Ties, and Isolation Among U.S. Entrepreneurs' 4. Nikolaus Franke, Marc Gruber, Dietmar Harhoff and Joachim Henkel (2008), 'Venture Capitalists' Evaluations of Start-Up Teams: Trade-Offs, Knock-Out Criteria, and the Impact of VC Experience' 5. Iris Vanaelst, Bart Clarysse, Mike Wright, Andy Lockett, Nathalie Moray and Rosette S'Jegers (2006), 'Entrepreneurial Team Development in Academic Spinouts: An Examination of Team Heterogeneity' PART II SOCIAL INTERACTION AND INTERPERSONAL PROCESSES WITHIN TEAMS 6. Sanjib Chowdhury (2005), 'Demographic Diversity for Building an Effective Entrepreneurial Team: Is It Important' 7. Deborah H. Francis and William R. Sandberg (2000), 'Friendship Within Entrepreneurial Teams and its Association with Team and Venture Performance' 8. Michael D. Ensley, Allison W. Pearson and Allen C. Amason (2002), 'Understanding the Dynamics of New Venture Top Management Teams: Cohesion, Conflict, and New Venture Performance' 9. Thomas Lechler (2001), 'Social Interaction: A Determinant of Entrepreneurial Team Venture Success' 10. G. Page West III (2007), 'Collective Cognition: When Entrepreneurial Teams, Not Individuals, Make Decisions' PART III TEAM TURNOVER 11. Aegean Leung, Jing Zhang, Poh Kam Wong and Maw Der Foo (2006), 'The Use of Networks in Human Resource Acquisition for Entrepreneurial Firms: Multiple fit Considerations' 12. Warren Boeker and Rushi Karichalil (2002), 'Entrepreneurial Transitions: Factors Influencing Founder Departure' 13. Deniz Ucbasaran, Andy Lockett, Mike Wright and Paul Westhead (2003), 'Entrepreneurial Founder Teams: Factors Associated with Member Entry and Exit' 14. Warren Boeker and Robert Wiltbank (2005), 'New Venture Evolution and Managerial Capabilities' PART IV OUTCOME 15. Juan B. Roure and Modesto A. Maidique (1986), 'Linking Pre Funding Factors and High-Technology Venture Success: An Exploratory Study' 16. Kathleen M. Eisenhardt and Claudia Bird Schoonhoven (1990), 'Organizational Growth: Linking Founding Team, Strategy, Environment, and Growth Among U.S. Semiconductor Ventures' 17. Frederic Delmar and Scott Shane (2006), 'Does Experience Matter? The Effect of Founding Team Experience on the Survival and Sales of Newly-Founded Ventures' 18. Christine M. Beckman and M. Diane Burton (2008), 'Founding the Future: Path Dependence in the Evolution of Top Management Teams from Founding to IPO' Name Index

Creating new ventures is one of the most central topics to entrepreneurship and is a critical step from which many theories of management, organizational behavior, and strategic management build. Therefore, this review and proposed research agenda are relevant to not only entrepreneurship scholars but also other management scholars who wish to challenge some of the implicit assumptions of their current streams of research and extend the boundaries of their current theories to earlier in the organization’s life. Given that the last systematic review of the topic was published 16 years ago, and that the topic has evolved rapidly over this time, an overview and research outlook are long overdue. From our review, we inductively generated 10 subtopics: (a) lead founder, (b) founding team, (c) social relationships, (d) cognitions, (e) emergent organizing, (f) new-venture strategy, (g) organizational emergence, (h) new-venture legitimacy, (i) founder exit, and (j) entrepreneurial environment. These subtopics are then organized into three major stages of the entrepreneurial process: co-creating, organizing, and performing. Together, the framework provides a cohesive story of the past and a road map for future research on creating new ventures, focusing on the links connecting these subtopics.

Founding teams can form utilizing either a resource seeking strategy (instrumental focus on complementary skills) or an interpersonal attraction strategy (close relationships with similar others in an immediate network). Yet, utilizing both (dual) formation strategies may be more beneficial. Our paper provides novel theory and evidence to shed light on why and how a dual formation strategy, although challenging and difficult to execute, may be critical for early performance. We theorize that teams that employ dual formation strategies from the onset develop stronger transactive memory systems, owing to close relationships that facilitate smooth coordination among founders who specialize in complementary tasks. Stronger transactive memory systems thus mediate the relationship between initial formation strategy and early entrepreneurial success. Findings from two field observational studies and a field intervention study are consistent with our theory: teams formed based on a dual strategy raised greater seed funding on Kickstarter – a leading crowdfunding platform (Study 1), were more successful in a prestigious entrepreneurial competition (Study 2), and gained more profits from selling their initial products (Study 3). Our research advances knowledge on entrepreneurial team formation and offers practical recommendations to facilitate this process at such nascent, but critical stages.

A process study of entrepreneurial team formation: the case of a research-based spin-off