Venture Labor: A Nonfinancial Signal for Start-up Success

Abstract

We examine an emerging phenomenon that talented employees leave successful entrepreneurial firms to join less mature start-ups. Using proprietary person-level data and private firm data, we find that the presence of these “serial venture employees” positively predicts their new employers’ future success in terms of exit likelihoods, size growth, venture capital financing, and innovation productivity. Such predictive power is more likely driven by a two-way screening/matching channel rather than venture labor’s nurturing role and is stronger than the predictive power of other high-talent labor such as employees top-paid by their previous employers or those having prior VC-backing/public-firm experience. We further demonstrate the usefulness of this labor-based signal to job seekers on the entrepreneurial market, especially when alternative information sources about the start-ups are limited. Our paper sheds light on an underexplored pattern of inter-firm labor flow, which provides a nonfinancial yet value-relevant signal about private firms for investors and stakeholders.

Keywords: Venture Labor, Serial Venture Employees, Start-up Performance, IPOs and Sell-outs, Information Environments about Private Firms, Innovation

JEL Classification: G32, G34, J24, J63, M13