Harvard Business School
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NBER Working Papers and Publications
|April 2011||The First Deal: The Division of Founder Equity in New Ventures|
with Thomas F. Hellmann: w16922
This paper examines the division of founder shares in entrepreneurial ventures, focusing on the decision of whether or not to divide the shares equally among all founders. To motivate the empirical analysis we develop a simple theory of costly bargaining, where founders trade off the simplicity of accepting an equal split, with the costs of negotiating a differentiated allocation of founder equity. We test the predictions of the theory on a proprietary dataset comprised of 1,476 founders in 511 entrepreneurial ventures. The empirical analysis consists of three main steps. First we consider determinants of equal splitting. We identify three founder characteristics -idea generation, prior entrepreneurial experience and founder capital contributions - regarding which greater team heterogeneit...
Published: Thomas Hellmann & Noam Wasserman, 2017. "The First Deal: The Division of Founder Equity in New Ventures," Management Science, vol 63(8), pages 2647-2666.