Abstract
PurposeThe purpose of this paper is to investigate into the conditions under which founders’ human capital (HC) benefits new venture growth (NVG). One such condition is investigated in this study – initial assets at founding. Specifically, founding assets are hypothesized to moderate the relationship between founders’ HC and NVG.Design/methodology/approachThe longitudinal panel database from the Kauffman Firm Survey for the period 2004–2011 was used to test the hypotheses. The final sample consisted of 4,923 firms, with 34,461 observations made over seven years.FindingsThe regression analysis found the effect of founders’ HC on NVG and the moderating role of founding assets in the HC–NVG relationship.Research limitations/implicationsNew ventures benefit even more from founders’ education level, industry and startup experiences when the startups have larger assets at founding. The effect of founders’ education and experiences on startup growth is contingent upon the initial assets at founding.Practical implicationsThe results of this study can help practitioners and policy makers to understand the drivers of NVG and the interactions among these drivers. Growth-oriented startups may require a large investment in founding assets such as production facilities. Startups with fewer founding assets may find it particularly difficult to negotiate with external stakeholders and may face unusually intense competitive responses from competitors. Policy makers should tailor the support to the founding conditions of new firms.Originality/valueThe prior literature has shown mostly the independent positive effects of various resources on firm growth. This study argues and empirically shows that startups grow faster when founders with high HC have more assets to utilize. The resource-based view literature was expanded by adding important new causal mechanisms, enriching our understanding of how founders’ HC interact with founding assets, jointly affecting NVG. Like a big fish in a small pond, even highly educated and experienced entrepreneurs have limited opportunities to utilize their talents in a startup with a lower initial resource position.
Highlights
Growth is an indicator of new firm success (Feeser and Willard, 1990; Fischer and Reuber, 2003; Barringer et al, 2005), and founders’ human capital (HC) endowments, such as their knowledge and skills, are critical elements in new venture growth (NVG) (Colombo and Grilli, 2010)
The data show that NVG was positively and significantly correlated with founders’ education level, industry experience, startup experience, founding assets, intellectual properties, initial external equity and interaction terms
It shows that NVG was negatively and significantly correlated with founders’ gender, age and the total number of local firms in the same industry
Summary
Growth is an indicator of new firm success (Feeser and Willard, 1990; Fischer and Reuber, 2003; Barringer et al, 2005), and founders’ human capital (HC) endowments, such as their knowledge and skills, are critical elements in new venture growth (NVG) (Colombo and Grilli, 2010). The results of these empirical studies into the role of founders’ HC on NVG are inconclusive (Stuart and Abetti, 1990; Westhead and Cowling, 1995; Almus and Nerlinger, 1999; Colombo and Grilli, 2005; Cassar, 2014), possibly because of a lack of investigation into the conditions under which founders’ HC benefits NVG. One such condition is investigated in this study – initial assets at founding. The interaction between founders’ HC and the initial assets at founding is examined to open up the black box of entrepreneurial resource mobilization process
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