Ownership Dynamics within Founder Teams: The Role of External Financing

77 Pages Posted: 20 Aug 2017 Last revised: 10 Feb 2019

See all articles by Thomas F. Hellmann

Thomas F. Hellmann

University of Oxford - Said Business School; University of Oxford - Said Business School

Paul Schure

University of Victoria - Economics

Chloe Tergiman

The Pennsylvania State University

Dan Vo

Sauder School of Business, University of British Columbia

Date Written: February 2019

Abstract

This paper examines how founders within start-up teams dynamically re-adjust their relative ownership stakes. It leverages a unique dataset from British Columbia, Canada, which contains detailed information on founder ownership over time. Two trade-offs between efficiency and fairness are identified, one at the time of founding, the other as the venture develops. Teams with a preference for fairness at the start, as witnessed by an equal division of founder shares, also exhibit a dynamic preference for fairness, as witnessed by a reluctance to change ownership over time. Relative founder stakes are more likely to change when a company raises investments. Larger rounds, and lower valuations are associated with bigger changes in relative founder stakes.

Keywords: Founder teams, ownership change, fairness, external financing, founder shares, dynamics

Suggested Citation

Hellmann, Thomas F. and Schure, Paul and Tergiman, Chloe and Vo, Dan, Ownership Dynamics within Founder Teams: The Role of External Financing (February 2019). Saïd Business School WP 2017-12. Available at SSRN: https://ssrn.com/abstract=3020629 or http://dx.doi.org/10.2139/ssrn.3020629

Thomas F. Hellmann (Contact Author)

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain
+44 (0)1865 288937 (Phone)

HOME PAGE: http://www.sbs.ox.ac.uk/community/people/thomas-hellmann

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain
+44 (0)1865 288937 (Phone)

HOME PAGE: http://www.sbs.ox.ac.uk/community/people/thomas-hellmann

Paul Schure

University of Victoria - Economics ( email )

Victoria V8W Y2Y, BC
Canada

Chloe Tergiman

The Pennsylvania State University ( email )

University Park
State College, PA 16802
United States

Dan Vo

Sauder School of Business, University of British Columbia ( email )

2329 West Mall
Vancouver, British Columbia BC V6T 1Z4
Canada

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