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  • 2023
  • Working Paper
  • HBS Working Paper Series

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

By: Michael Ewens, Ramana Nanda and Christopher Stanton
  • Format:Print
  • | Language:English
  • | Pages:74
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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 differentially 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

Citation

Ewens, Michael, Ramana Nanda, and Christopher Stanton. "Founder-CEO Compensation and Selection into Venture Capital-Backed Entrepreneurship." Harvard Business School Working Paper, No. 20-119, May 2020. (Revise and Resubmit at Journal of Finance. Revised January 2023.)
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About The Authors

Ramana Nanda

Entrepreneurial Management
→More Publications

Christopher T. Stanton

Entrepreneurial Management
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