Organizational Endowments and the Performance of University Start-ups

TLDR

The question of how initial resource endowments affect organizational life chances is a key concern in organizational ecology, evolutionary theory, and entrepreneurship research. The study investigates the role of founders' social capital as a determinant of venture funding, IPO, and failure outcomes. Using data on the life histories of all 134 MIT‑assigned‑invention firms founded 1980‑1996, the authors analyze how resource endowments influence the likelihood of attracting venture capital, achieving IPOs, and failing. Event‑history analyses show that firms whose founders have direct or indirect ties to venture investors are most likely to secure venture funding, least likely to fail, and that venture funding is the single most important predictor of IPO, underscoring founders’ social capital as a critical early‑stage endowment.

Abstract

The question of how initial resource endowments-the stocks of resources that entrepreneurs contribute to their new ventures at the time of founding-affect organizational life chances is one of significant interest in organizational ecology, evolutionary theory, and entrepreneurship research. Using data on the life histories of all 134 firms founded to exploit MIT-assigned inventions during the 1980-1996 period, the study analyzes how resource endowments affect the likelihood of three critical outcomes: that new ventures attract venture capital financing, experience initial public offerings, and fail. Our analysis focuses on the role of founders' social capital as a determinant of these outcomes. Event history analyses show that new ventures with founders having direct and indirect relationships with venture investors are most likely to receive venture funding and are less likely to fail. In turn, receiving venture funding is the single most important determinant of the likelihood of IPO. We conclude that the social capital of company founders represents an important endowment for early-stage organizations.