Jockeys, horses or teams? The selection of startups by venture capitalists

Abstract

How do venture capitalists select startups? Most research to date has focused on the attributes of either the founders (the jockey) or the business idea (the horse) as the determinants of selection. Connecting information from VentureXpert to the Danish registry data allows us to extend this analysis to include information on all employees of startups (the team). To assess the importance of these factors to access to venture capital, our analysis compares startups that received funding to other startups founded at the same time and in the same industry. Consistent with the jockey hypothesis and prior research, we find that firms with more and better educated founders have a higher probability of receiving venture capital. However, high-quality employees appear to matter even more than founders to the probability of being funded.