THE ROLE OF KEY RESOURCE PROVIDERS IN NEW VENTURE RESOURCE ACQUISITION

Abstract

This dissertation consists of three essays examining how new ventures acquire knowledge and how the acquisition of knowledge influences new venture outcomes. In Essay 1, I focus on how network connections affect entrepreneur’s knowledge of the value of their idea and their decision to quit or persist. In Essay 2, I focus on knowledge diversity between the founding team and their peers, and how the interaction of knowledge affects quitting, acquisitions, and funding. In Essay 3, I focus on how a venture’s need for external knowledge and experience change over time as the venture develops. The first essay focuses on how entrepreneurs’ networks may affect their assessment of their venture’s potential and their decision to quit. I examine founder networks in entrepreneurial accelerator cohorts, and find that central ventures whose founding teams have greater access to information are more likely to quit. Consistent with my predictions, the results suggest that better access to information helps reduce uncertainties regarding the expected future returns of the venture. Similar to Lerner and Malmendier (2013), my findings suggest that with more information, founding teams revise expected future returns to a lower level than previously estimated, and this increases the likelihood that the venture will cease operations. I also find that the effect of network information on quitting is weakened by other internal and external sources of information. Specifically, the usefulness of information from networks and the likelihood of quitting diminishes when the entrepreneurs have prior founding experience and when the venture receives more external attention. Overall, this study sheds light on competing sources of information for new ventures and its implications for important firm outcomes. The second essay investigates how access to specific types of knowledge affects both new venture learning and competition, which influences the outcome trajectory of the venture. I find that the relative similarity between the founding team’s prior knowledge and the distribution of knowledge in the broader cohort influences venture outcomes. I find that startup teams with a high share of technical backgrounds in cohorts with a high share of founders with technical backgrounds are more likely to exit via quitting or acquisition, while technical teams in a cohort with a high share of entrepreneurial experience are also more likely to get VC funding. Similarly, startup teams with a high share of business backgrounds in a cohort with a high share of founders with business backgrounds are less likely to get VC funding, while the same team in a technical cohort is more likely to get VC funding. Overall, I highlight the significance of different types of knowledge – on the part of the founding teams and their peers—in shaping the ability of startups to navigate critical decisions regarding exit and financing. The third essay explores the type of expertise and connections founders bring in through the appointment of early directors and how this evolves over time. I argue that as new ventures face pressures to rapidly learn and evolve, it must be the case that they seek out different types of expertise along the way. But we have no systematic evidence of who they seek out, when they seek them, and the mechanisms through which this occurs. Using data on the human and social capital of board members in 1,200 new ventures in the Computer Software industry, I develop several stylized findings. I find several systematic patterns in the experience and connections of directors appointed over time as ventures move through different stages of development.