Founder-CEO Compensation and Selection into Venture Capital-Backed Entrepreneurship

Michael Ewens, Ramana Nanda and Christopher Stanton Author-3-Name-First: Christopher Author-3-Name-Last: Stanton ()
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Christopher Stanton Author-3-Name-First: Christopher Author-3-Name-Last: Stanton: Harvard Business School, Entrepreneurial Management Unit

No 20-119, Harvard Business School Working Papers from Harvard Business School

Abstract: We show theoretically that a critical determinant of the attractiveness of VC-backed entrepreneurship for high-earning potential founders is the expected time to develop a startup's initial product. This is because founder-CEOs' cash compensation increases substantially after product development, alleviating the non-diversifiable risk that founders face at startup birth. Consistent with the model's predictions of where the supply of entrepreneurial talent is likely to be most constrained, we find that technological shocks di erentially altering the expected time to product across industries can explain changes in both the rate of entry and characteristics of individuals selecting into VC-backed entrepreneurship.

Keywords: Entrepreneurship; venture capital; executive compensation (search for similar items in EconPapers)
JEL-codes: G24 G32 J33 (search for similar items in EconPapers)
Pages: 77 pages
Date: 2020-05, Revised 2023-09
New Economics Papers: this item is included in nep-ent and nep-sbm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Forthcoming, Journal of Finance

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Working Paper: Founder-CEO Compensation and Selection into Venture Capital-Backed Entrepreneurship (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:hbs:wpaper:20-119

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