New Venture Teams and Acquisition: Team Composition Matters

Abstract

Acquisition is often one of the most coveted exit paths by entrepreneurs. As the acquisition market continues to entice both sellers (entrepreneurs and investors) and buyers, identifying the determinants of these acquisitions is an important research area for entrepreneurship scholars. Combining upper echelons theory with insights from similarity-attraction theory and information processing theory, this study examines the relationship between the composition of new venture founder teams (NVTs) and acquisition likelihood; a relationship that has received little attention in prior literature. The sample analyzed is from the Kauffman Firm Survey of US new ventures started in 2004 and tracked annually through 2011. We find that gender diversity and the average education level of team members are positively related to acquisition likelihood. In addition, our results indicate a negative effect from the presence of founders born outside of the US and the diversity of industry experience on acquisition likelihood. We find no relationship between race diversity and education level diversity on acquisition likelihood. This study provides insight into the significant role of the founder characteristics in team-founded ventures as it relates to acquisition likelihood and the results may be of interest to both founders and external investors.