Resource Contribution and the Distribution of Equity in Startups

• Main Authors: KOTHA, Reddi, GEORGE, Gerard
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2006
• Subjects: Equity stake; entrepreneurship; social interaction; Entrepreneurial and Small Business Operations; Strategic Management Policy
• Online Access: https://ink.library.smu.edu.sg/lkcsb_research/227; https://doi.org/10.5465/AMBPP.2006.22898143
• Institution: Singapore Management University

Entrepreneurs parse out the equity in their new venture to those individuals who contribute resources toward the formation of the nascent firm. Since the value of non-financial resources is not immediately apparent, the entrepreneur faces the dilemma of equity distribution, to distribute equity evenly to all helpers or unevenly to select members, and its implications for resource mobilization from these members. We find that the entrepreneur's ability to mobilize resources is influenced by interactions between the focal entrepreneur's specific human capital and strength of social relationships with resource providers. Also, the pattern of equity distribution significantly influences the total resources secured by the entrepreneur.