Entrepreneurs' Cognitive Ability and New Ventures' Performance

Abstract

Why do some newly founded ventures succeed, while others fail? We highlight the role of founder’s cognitive ability and its influence on forming founding team by leveraging the multilevel perspective on emergence of human capital resources. Using a near-exhaustive sample of Swedish male founders, we find that one standard deviation increase in founder’s cognitive ability is associated with about % 20 increase in performance measured by venture sales three years after starting operation. This effect is stronger for a founder operating in high-technology industries and weaker for a founder with entrepreneurial experience. Furthermore, the relationship between founder’s cognitive ability and venture sales is mediated by founding-team collective cognitive abilities, which underscores the relevance of studying processes underlying entrepreneurial team formation and their influence on new venture success.

Keywords: cognitive ability, performance of startups, founding teams