Business School Networks and VC-backed Startups

Abstract

This paper is the first to study the role of business school education in the creation and success of venture capital (VC) backed startup firms. Using a large new dataset of the educational backgrounds of entrepreneurial founders and executives and detailed data on business school rankings, we find that (i) almost a quarter of VC-backed startups over 1990-2010 are launched by founders with formal business education and two-thirds of startups have an executive with a business school degree, (ii) VC-backed startups experience better exit outcomes when their executive teams include MBA graduates, and (iii) startups are significantly more likely to retain a founder with an MBA as a post-IPO CEO. Consistent with a networking mechanism, 29% of VC-backed startups have at least two executives from the same business school, and 13% of startups have at least one executive and one VC director from the same business school. Such startups with connected executives are significantly more likely to successfully exit through an IPO or an acquisition. Overall, our findings provide evidence on the role of business schools in promoting the formation of professional networks and the acquisition of skills important for launching a successful startup.

Keywords: Entrepreneurship, Venture capital, Startup firms, Business school networks, Management quality

JEL Classification: G24, G32, G34