Are Well-Connected Entrepreneurs More Successful? A Study of Start-up Founder LinkedIn Profiles and Their Role in Investor Decision-Making

2019-01-02T14:50:56Z (GMT) by Devika Banerji
Social capital through connections in networks has been argued to be important for startup enterprises. Founder human capital qualities like education, experience, skills have also been shown to be important predictors of startup success. However, does founder social capital matter for startup success beyond founder human capital? To answer this question, this project draws from the decision-making literature and uses five decision strategies to explore how founder human capital and social capital are associated with investment funds raised by startup companies.

Two studies were conducted. The first study investigated if a decision strategy that looks at founder social capital better predicts which company raises more investment funds than a decision strategy that only uses founder human capital. The second study investigated if actual investors and entrepreneurs, of varying expertise levels, integrate founder social capital variables while making investment decisions.

Both studies found that number of LinkedIn connections of founders of a company was the best predictor of investment funds raised by the company. The first study showed that decision strategies that use social capital cues are similar in predicting successful companies compared to strategies that use human capital cues. The next study showed that, contrary to our expectations, decision strategies that use social capital cues better predict investor choices than strategies that use only human capital cues. It was expected that models that used human capital cues would be better predictors of investor choice behavior than social capital cues. Therefore, the two studies show that founder social capital is associated with investment funds raised by a startup company and investors do take founder social capital into consideration while deciding which startup company to invest in. In doing so, the studies establish the importance of founder social capital in the entrepreneurial context.