Academic journal article Entrepreneurship: Theory and Practice

New Venture Teams and the Quality of Business Opportunities Identified: Faultlines between Subgroups of Founders and Investors

Academic journal article Entrepreneurship: Theory and Practice

New Venture Teams and the Quality of Business Opportunities Identified: Faultlines between Subgroups of Founders and Investors

Article excerpt

New venture teams (NVT) often comprise idea-conceiving founders and equity-based investors. These subgroups represent a faultline whose magnitude influences the quality of business opportunities. We propose that the faultline strength formed between founders and investors is influenced by structural factors (ownership equity, membership change, preexisting tie strength) and cognitive factor (mental models of the venture). Finally, we address how the faultline strength impacts interaction processes (relationship conflict, task conflict, knowledge exchange) and their subsequent impact on the quality of entrepreneurial opportunities. Our theoretical model provides insight into how informational resources inherent in new venture teams can be more effectively leveraged.

Introduction

With entrepreneurship becoming increasingly central to economic growth, there is growing interest in understanding how entrepreneurs and the teams that they form work together to bring to market new opportunities. Much attention has been given to individual entrepreneurs as the heroes of successful ventures. The reality is that the "entrepreneur in entrepreneurship" frequently involves a team of individuals (Amason, Shrader, & Tompson, 2006; Beckman, Burton, & O'Rielly, 2007; Ucbasaran, Lockett, Wright, & Westhead, 2003). Most entrepreneurial endeavors, including the identification of new opportunities, the positioning of a product, and target market selection, tend to be undertaken by teams rather than single individuals (West, 2007; Zahra, 2006). While a single individual may initially conceive of an invention, it is usually a team of individuals that work to commercialize the venture. Capabilities and skills as well as financial capital limitations all point to the reliance on teams to enhance the advancement of ventures.

The individual entrepreneur is a convenient and useful unit of analysis for much research in the entrepreneurship domain, and thus, receives a great deal of attention even though the entrepreneurial processes and the development of new opportunities are so frequently pursued by teams. Capital constraints and the role of equity investors coming into the mix is an important part of the entrepreneurial process (Fried & Hisrich, 1995; Shepherd, Ettenson, & Crouch, 2000). Substantial research has addressed a range of related issues such as the decision of investors to syndicate (Manigart et al., 2006), what investor involvement entails (MacMillan, Kulow, & Khoylian, 1989), and the potential value that they add (Busenitz, Fiet, & Moesel, 2004; Sapienza, 1992). While founders and venture capitalists have received significant research attention separately, limited research has considered them as subgroups, and we know of no studies that have considered the dynamics between the subgroups of founders and investors comprising a new venture team (NVT). Such teams are foundational for many ventures.

Research on groups refers to the divisions between subgroups as "faultlines" (Lau & Murnighan, 2005). Faultlines have been defined as "hypothetical dividing lines that split a group into relatively homogenous subgroups based on demographic alignment along multiple attributes" (Bezrukova, Jehn, Zanutto, & Thatcher, 2009, p. 35). Further, such faultlines assume that individual members with their inherent traits--referred to as solo actors--come together to form a group. Faultlines then emerge based on the alignment of demographic characteristics once the group is formed.

This foundational concept of faultlines has been extended to address "factional faultlines" (Li & Hambrick, 2005), which presume that group members do not come as solo actors but represent different social entities. Because the basis of factional faultlines is membership in social entities, these faultlines are present at the very beginning when representatives of these social entities come together to form a group. …

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