Knowledge Similarity Among Founders and Joiners: Impact on Venture Scaleup in Fintech and Lawtech

Abstract

In what ways does knowledge similarity among co-founders contribute to venture scaleup? This paper addresses this question by taking account of knowledge domains among early employees and in founders’ social networks. We build a theoretical framework to predict which knowledge combinations are likely to lead to venture growth at different stages. We test our theory using a database of 315 fintech and lawtech startups (with a total of 600 founders and 328 early joiners) in three locations (London, New York City, and San Francisco Bay Area) during the period 2009-2020. Our central finding is that venture growth is explained by knowledge-similar founding teams, founders’ social ties to other founders whose knowledge domains are different from their own, and knowledge-dissimilar employees. Moreover, the positive impact of knowledge similarity in founding teams on venture growth is stronger for older ventures than young ventures, and for mature than nascent ecosystems. These findings highlight the importance of simultaneously studying knowledge domains in founding teams, their social networks, and early employees. Just as important is to analyze the impact of knowledge similarity at different stages in the entrepreneurial process from ideas generation, choice of strategy, and strategy implementation.

Keywords: Entrepreneurship, founder knowledge domains, early venture employees, social ties, network analysis, fintech, lawtech, Burning Glass, Crunchbase, LinkedIn.

JEL Classification: J24, L14, L16, L26, L84, L86, M13, O33