Unequal for success? Initial equity split in new ventures, team entry, and new venture performance

Abstract

When starting a firm, the founding team needs to decide whether to choose an unequal or equal equity split. Within our framework of two ownership archetypes, we hypothesize and find empirical evidence that teams with an unequal equity split show higher performance, that they are more likely to accept new team members, and that team entry positively mediates the relationship between equity split and performance. Our results reveal how the preferences of founders with respect to social relations in the team, impregnate the future strategic decision-making in firms and explain why both types of equity split are observed in practice.