The Influence of Founding Experience on the Establishment of Organizational Structures

Abstract

This article introduces a multi-level human capital perspective on the origins of new ventures’ organizational structures. We examine the human capital of the founding team and venture capital investors and establish a model that details each party’s influence on the venture’s organizational design. In explaining the role of human capital in entrepreneurship, we argue that the influence of experienced founding teams and that of experienced venture capital investors both lead to differentiated organizational designs but that there is no additional effect when both parties are experienced. To validate our hypotheses empirically, we compile a longitudinal database of 199 new biotechnology ventures founded between 2001 and 2012 with 1,723 observation years and 460 funding rounds. We find that both experienced entrepreneurs and experienced venture capital investors lead to deeper and broader organizations in the absence of the other but no additional effect of their simultaneous presence. This study contributes to human capital research in the realm of entrepreneurship by considering the experience of the founding team and venture capital investors in an integrated, multi-level model. In addition, this study contributes to organizational research by providing detailed evidence on the differences in organizational design choices made by experienced founding teams and experienced venture capital investors compared to their unexperienced counterparts.