The Journal of Finance publishes leading research across all the major fields of finance. It is one of the most widely cited journals in academic finance, and in all of economics. Each of the six issues per year reaches over 8,000 academics, finance professionals, libraries, and government and financial institutions around the world. The journal is the official publication of The American Finance Association, the premier academic organization devoted to the study and promotion of knowledge about financial economics.
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Founder‐CEO Compensation and Selection into Venture Capital‐Backed Entrepreneurship
Published: 08/22/2024 | DOI: 10.1111/jofi.13383
MICHAEL EWENS, RAMANA NANDA, CHRISTOPHER STANTON
We show theoretically that a critical determinant of the attractiveness of venture capital (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 nondiversifiable 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.