The Impact of Founding Team’s Human Capital on Mean and Variability of New Venture Growth

Abstract

The impact of founders’ human capital on the success of new ventures has been extensively investigated in the literature. However, the studies up to date concentrated on assessing the impact of founders’ human capital on conditional mean of venture performance, without analyzing its impact on variance of resulting outcome distribution (i.e., variability around the conditional mean), which implies firm-level risk yet also determines the probability of getting enormously high returns (“blockbusters”). Estimating the multiplicative heteroscedasticity regression model on the data from 2975 new ventures from Kauffman Firm Survey, we assess the distinct impact of founding team’s human capital components on firm growth and variability of firm growth in the short- and medium-term (3 to 7 years after founding), with controlling the survivorship bias. Whereas team size, commitment, and past venture experience positively affect firm growth without affecting the variability, the team industry work experience and education significantly increase variability without affecting the mean. Finally, age of team members and the ratio of native-born owners have a negative impact on firm growth and positive impact on its variability.