Publications
Publications
  • August 2017
  • Article
  • Management Science

The First Deal: The Division of Founder Equity in New Ventures

By: Thomas F. Hellmann and Noam Wasserman
  • Format:Print
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Abstract

We examine the trade-off between efficiency and equality within the context of entrepreneurial founding teams. Using a formal theory where founders may have preferences over relative outcomes, we derive predictions about the antecedents and consequences of dividing equity equally among all founders. Using proprietary survey data, we empirically test the predictions. Our central finding is that teams that split equity equally are less likely to raise funds from outside investors. The relationship appears not to be causal, but instead driven by selection effects across heterogeneous teams with varying degrees of inequality aversion.

Keywords

Equality and Inequality; Entrepreneurship; Equity

Citation

Hellmann, Thomas F., and Noam Wasserman. "The First Deal: The Division of Founder Equity in New Ventures." Management Science 63, no. 8 (August 2017): 2647–2666.

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