Disproportionate Distribution of Stock Owership Among Initial Founders in Startup Ventures: Survey Results and a Ranking of Factors


  • Joseph R. Bell University of Arkansas at Little Rock


To date little research has been performed as to how founders of startup ventures determine initial distribution of ownership. In many instances, distribution of ownership is proportionally divided, even though individual contributions to the venture may vary widely. In these circumstances, a disproportionate distribution of ownership would be more reflective of individual contributions to the venture, and more importantly, determine the appropriate incentive (or "reward") for each founder. A survey of business owners was administered, and counter to much of the existing literature, a significant percentage of the respondents divided ownership disproportionately. The survey provides a ranking of factors that can contribute to disproportionate distribution of ownership.


Download data is not yet available.


Compensation and Entrepreneurship Report in Information Technology, sponsored by Wilmer, Cutler, Pickering, Hale and Dorr, Ernst & Young, and J. Robert Scott, www.compstudy.com/libraryArchives/2 005CompstudyIT(Full).pdf, , pp. 1-68, visited July 26, 2007.

Compensation and Entrepreneurship Report in Information Technology, sponsored by WilmerHale, Ernst & Young, and J. Robert Scott, www.compstudy.com/libraryArchives/2 006CompstudyIT(Abridged).pdf, pp. 1- 24, visited July 26, 2007.

Amason, A.C., Shrader, R.C., and Tompson, G.H. (2006). Newness and novelty: relating top management team competition two new venture performance. Journal of Business Venturing, 21, 125-148.

Barry, Tim, www.bplans.com/qa/article.cfm/381?mat ch=all&sf=equity, Negotiating Startup Equity, visited July 17, 2007.

Becker-Blease, J. R. and Sohl, J. E., 2007, Do Women-Owned Businesses Have Equal Access to Angel Capital?, Journal of Business Venturing, 22, pp.503-521.

Beckman, C. M., Burton, M. D. and O'Reilly, C., 2007, Early Teams: The Impact of Team Demography on VC Financing and Going Public, Journal of Business Venturing, 22, pp. 147-173.

Birley, S., and Westhead, P., 1990, Private Business Sales Environments In The United Kingdom, Journal of Business In Venturing, 5(6), pp349-373.

Busenitz, L.W., Fiet, J.O. and Moesel, D.D., 2005, Signaling In A Venture Capitalist - New Venture Team Funding Decisions: Long-Term Venture Outcomes?, Entrepreneurship Theory And Practice, 29 (1), January, pp 1-12.

Cachon, J-C., "A longitudinal investigation of entrepreneurial teams, Part One: Who is involved in what makes them succeed." 1990, In N.C. Churchill, W.D. Bygrave, J.A. Hornaday,

D.F. Muzyka, K. H. Vesper & W.E. Wetzel, Jr, Frontiers of Entrepreneurship Research. Wellesley, MA: Center for Entrepreneurial Studies, Babson College, 100 - 102.

Chaganti, R. S., Watts, A. D., Chaganti, R., and Zimmerman-Treichel, M., 2008, Ethnic- Immigrants in Founding Teams: Effects of Prospector Strategy and Performance in New Internet Ventures, Journal of Business Venturing, 23, pp. 113-139.

Chandler, G.N., and Hanks, S.W., An Examination Of The Suitability Of Founders Human And Financial Capital In Emerging Ventures, 1998, Journal Of Business Venturing, 13, pp 353-369.

Chandler, G.N., Founders Self-Assessed Competence and Venture Performance, 1992, Journal of Business Venturing, 7 (3), pp 223-236.

Chandler, G. N., Honig, B., and Wiklund, J., 2005, Antecedents, Moderators, and Performance Consequences of Membership Change In New Venture Teams, Journal of Business Venturing, 20, pp. 705-725.

Chowdhury, S., 2005, Demographic Diversity For Building An Effective Entrepreneurial Team; Is It Important?, Journal of Business Venturing, 20, pp. 727-746.

Cliff, J. E., Jennings, P. D., and Greenwood, R., 2006, New to the Game in Questioning the Rules: The Experiences and Beliefs Of Founders Store Imitative Versus Innovative Firms, Journal of Business Venturing, 21, 633- 663.

Coleman, S., 2007, The Role Of Human and Financial Capital in the Profitability and Growth of Women-Owned Small Firms, Journal of Small Business Management, 45 (3), pp. 303-319.

Cooper, A. C.., and Daily, C.. M. (1997) Entrepreneurial Teams, Entrepreneurship 2000. Chicago: Upstart Publishing.

Cooper, A.C., Gimeno-Gascon, F.J., and Woo, C.Y., 1994, Initial Human and Financial Capital As Predictors Of New Venture Performance, Journal Of Business Venturing, 9(5), pp 371-396.

Cringely, Robert, 2005, Interview of Max Levchin, http://www.pbs.org/cringely/nerdtv/sho ws/, September 13.

Dimov, D.P. and Shepherd, D.A., 2005, Human Capital Theory and Venture Capital Firms: Exploring "Home Runs" and "Strikeouts", Journal of Business Venturing, 20, pp. 1-21.

Ennico, C, 2002, Commentary: What do investors really want? Long Island Business News, May 31.

Ensley, M.D., Carland, J.C. and Carland, J.W., 1998, The Effects Of Entrepreneurial Team Skill Heterogeneity And Functional Diversity On New Venture Performance. Journal of Business and Entrepreneurship, 10(1), pp 276-286.

Forbes, D. P., Borchert, P.S., Zellmer- Bruhn, M.E. and Sapienza, H.J., 2006, Entrepreneurial Team Formation: An Exploration of New Member Addition, Entrepreneurship Theory and Practice, 30 (2), March, pp 225-248.

Franke, N., Gruber, M., Harhoff, D., and Henkel, J., 2006, What you are is what you like - similarity biases in venture capitals' evaluations of start-up teams, Journal of Business Venturing, 21, pp 802-826.

Headapohl, J. (2007). How much Stake do you feed an angel (investor)?. Retrieved from http://www.startupnation.com/articles/1 546/1/angel-investors-stake.asp, StartupNation, LLC, 2007, interview of Bill Payne who founded the Vegas Valley Angels in Nevada and now is an entrepreneur-in-residence at the Kauffman Foundation, visited July 26, 2007.

Kamm, J.B., Shuman, J.C., Seeger, J.A., and Nurick, A.J., 1990, Entrepreneurial Teams in New Venture Creation: A Research Agenda, Entrepreneurship Theory and Practice, 14(4) Summer pp 7- 17.

Kor, Y.Y., Experience Based Top Management Team Competence and Sustained Growth, 2003, Organization Science, 14 (6), Nov.-Dec., pp 707-719.

Leland, H.E. and Pyle, D.H., 1977, Informational Asymmetries, Financial Structure, and Financial Intermediation, Journal of Finance, 32, pp 371-387.

Lester, R.H., Certo, S.T., Dalton, C.M., Dalton, D.R., and Cannella, Jr., A.A., 2006, Initial Public Offerings Investor Valuations: An Examination of Top Management Team Prestige And Environmental Uncertainty, Journal Of Small Business Management, 44 (1), pp 1- 26.

Levesque, M., and Minniti, M., 2006, The Effect of Aging on Entrepreneurial Behavior, Journal of Business Venturing, 21, pp. 177 - 194.

Morino Institute, People Define the Deals, Venture Capitalists Share the Formula for Funding Success 1998, http://www.netpreneur.org/events/doug hnets/article072898.html,. Falls Church, VA - July 28, 1998, Visited June 13, 2007.

Neal D.A., 2004, Capital Structure for Entrepreneurs, Excerpted from FastTrac® Tech Ventures(TM). www.eventuring.org/.../appmanager/eV enturing/ShowDoc /eShipWebCacheRepository/Documents /Capital_Structure.pdf, visited July 17, 2007.

Prasad, Dev, Burton, G.D. and Vozikis, G., 2000, Signaling Value To Business Angels: The Proportion of Entrepreneurs Net Worth Invested In a New Venture as a Decision and Signal, Venture Capital, 23, pp. 167 - 182.

Robbins, S., 2003, Dividing Equity Between Founders and Investors, www.entrepreneur.com/ money/financing /venturecapital/article65028.html, October 13. Visited July 16, 2007.

Robbins, S. (2005). Equity distribution in startups. Retrieved from www.venturechoice.com/articles/ equity_distribution_in_startups.htm , visited July 16, 2007.

Roberts, E.B. and Berry, C.A., 1985, Entering a New Businesses: Selecting Strategies for Success, Sloan Management Review, 26(3), pp. 3-17.

Ronstadt, R.C., 1984, Entrepreneurship: text, cases and notes. Massachusetts: Lord Publishing.

Roure, J.B., and Keeley, R.H., 1990, Predictors of Success in New Technology Based Ventures, Journal of Business Venturing, 5, pp 201-220.

Rubenson, G.C. and Gupta, A.K., 1996, The Initial Succession: A Contingency Model Of Founder Tenure, Entrepreneurship Theory And Practice, 21(2), Winter, pp. 21-35.

Stevenson, H.H., Roberts, M.J., and Grousbeck, H.I., 1994, New Business Ventures and The Entrepreneur, Burr Ridge, IL: Richard D. Irwin.

Timmons, J.A., 1979, Growing Concerns: Tools for evaluating the startup venture in for financing the existing one, edited by David E. Gumpert, Harvard Business Review, Nov.-Dec., pp. 198-206.

Timmons, J.A., 1975, The Entrepreneurial Team: An American Dream or Nightmare, Journal of Small Business Management, 13(4), October, pp. 33-38.

Timmons, J.A., and Spinelli, S., 2007, New Venture Creation: Entrepreneurship for the 21st Century, McGraw-Hill Irwin.

Ucbasaran, D., Lockett, A, Wright, M., and Westhead, P., 2003, Entrepreneurial Founder Teams: Factors Associated with Members Entry and Exit. Entrepreneurship Theory and Practice, 28(2), pp107-127.

Vanaelst, I., Clarysse, B., Wright, M., Lockett, A., Moray, N., and S'Jegers, R., 2006, Entrepreneurial Team Development in Academic Spin Outs: An Examination of Team Heterogeneity, Entrepreneurship Theory and Practice, 30 (2), March, pp 249-271.

Wasserman, N., 2003, Founder-CEO Succession and the Paradox of Entrepreneurial Success, Organization Science, 14(2) Mar.-Ap., pp 149-172.

Watson, W., Stewart, W. and BerNir, A., 2003, The effects of human capital, organizational demography, and interpersonal processes on venture partner perceptions of firm profit and growth, Journal Of Business Venturing, 18, pp. 145-164.

Wright, M., Westhead, P., and Sohl, J., 1998, Editors' Introduction: Habitual Entrepreneurs and Angel Investors, Entrepreneurship Theory and Practice, 22 (4), Summer, pp. 5-21.

Wright, M., Robbie, K., and Ennew, C., 1997, Serial Entrepreneurs, British Journal of Management, 8(3), pp 251-268.

Wu, Z., Hedges, P. L., and Zhang, S., 2007, Effects of Concentrated Ownership and Owner Management on Small Business Debt Financing, Journal of Small Business Management, 45 (4), pp. 442-437.

Zopounidis, C., 1994. Venture Capital Modeling: Evaluation Criteria for the Appraisal of Investments. The Financier ACMT, 1(54-64), (May).