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

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  • Ewens, Michael

    (California Institute of Technology)

  • Nanda, Ramana
  • Stanton, Christopher

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.

Suggested Citation

  • Ewens, Michael & Nanda, Ramana & Stanton, Christopher, 2020. "Founder-CEO Compensation and Selection into Venture Capital-Backed Entrepreneurship," SocArXiv rku3m_v1, Center for Open Science.
    • Handle: RePEc:osf:socarx:rku3m_v1
    DOI: 10.31219/osf.io/rku3m_v1
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