Entrepreneurial passion diversity in new venture teams: An empirical examination of short- and long-term performance implications

Empirical evidence is mounting that passion is an important part of entrepreneurship, contributing to behavior and outcomes for entrepreneurs, employees, and ventures. Yet knowledge of the performance implications of passion within new venture teams is sorely lacking. We examine how both the average level of entrepreneurial passion and the diversity of passion within new venture teams contributes to venture performance in both the short- and long-term. We test our model with multi-source, multi-wave data collected from 107 new venture teams participating in an accelerator program. Our findings indicate that average team passion is not significantly related to performance, but passion diversity, particularly intensity separation, is negatively related to performance. These findings have important implications for the literature on passion, new venture teams, and group affective diversity.Executive summaryWhile existing studies have substantially improved our understanding of entrepreneurial passion, its sources, and its subsequent impact, insight into this topic remains limited in at least three ways. First, most new ventures are founded and led by teams rather than individuals, yet existing studies predominantly focus on entrepreneurial passion at the individual rather than team level. Second, while there is a prevailing assumption in existing literature that entrepreneurial passion leads to beneficial outcomes consistent with longstanding work in psychology, there is emerging evidence in entrepreneurship that passion may not always be functional and that it can even be dysfunctional. Despite this, we have limited understanding of what types of passion or when or for whom it is dysfunctional. And third, extant work on entrepreneurial passion for individuals and within teams has focused on behavioral or self-report measures of performance (e.g. Cardon and Kirk, 2015; Santos & Cardon, 2019) as well as venture survival, rather than objective team or firm performance in the short- and long-term.In this paper, we study the influence of team passion on new venture team performance. We draw on theory concerning entrepreneurial passion within venture teams (Cardon et al., 2017) that suggests that different aspects of entrepreneurial passion within teams shape team dynamics and venture outcomes. While generally, theories of passion suggest that entrepreneurial passion is positively related to team outcomes due to the positive emotions it brings about, we find that in teams, the relationships are more complex. While the average level of passion among team members is positively related to team performance when considered alone, this effect is not significant when passion diversity is also considered. Diversity of passion among individual team members has a negative relationship with team performance, including diversity in the level of passion team members experience (intensity separation), as well as diversity in the object of their passion (focus variety). These negatively affect team dynamics due to conflicting emotions and identities among team members associated with passion diversity. We examine these relationships on specific team performance outcomes including evaluation of the business idea in the short-term and venture performance five years after their participation in an accelerator.The sample used in this study includes 107 entrepreneurial teams that were part of an accelerator program in the Netherlands. Teams were evaluated on the quality of their business ideas at the end of the accelerator program and the amount of investment the team had received five years later. Our results provide no support for positive effects of average team passion on the quality of the business ideas and confirm the negative effects of passion intensity separation on the quality of the business idea and the negative effects of passion focus variety on later venture performance.This paper makes several contributions. First, we expand the literature on passion in entrepreneurship, specifically adding to our understanding of passion within new venture teams. More specifically, we contribute to the growing body of evidence concerning potential dysfunctions of passion by uncovering a dysfunctional property of team passion diversity that uniquely manifests itself at the team level of analysis. We contribute to the literature on new venture teams by examining team composition in the form of passion diversity, and its relationship with team performance. Finally, our study extends work on the effects of entrepreneurial passion by looking at objective team performance outcomes in both the short- and long-term.For entrepreneurs, our findings confirm the importance of affect and identity for new venture teams, and specifically our findings indicate that there is a dark side to team passion. While passion is generally positioned as a positive phenomenon, we highlight the negative outcomes that passion can have in the team context. Diversity in the amount of passion team members experience can diminish the quality of the business ideas the team is able to generate in the short-term, while diversity in the focus of team members' passion can diminish the firm's long-term performance. For investors and accelerator communities this research validates the importance of considering entrepreneurial team composition and specifically entrepreneurial passion levels and domains when investing in teams or when supporting venture building.     

Networking Ability and the Financial Performance of New Ventures: Moderating Effects of Venture Size,Institutional Environment,and Their Interaction

Building on prior research, this study provides insights on the complex interaction between individual, organizational, and environmental factors in the field of new venture success. Specifically, we develop and test hypotheses on how venture size, institutional context, and their interaction moderate the effect of entrepreneurs' networking ability on the financial performance of new ventures. Based on a sample of 283 new ventures in Germany and Brazil—two countries that differ significantly in terms of their institutional frameworks—our analyses reveal moderating effects of venture size and the interaction between venture size and institutional environment.     

A founding-team model of creating a venture's culture

As many new ventures are started by founding teams, it is these founding teams that likely engage in creating their venture's culture. We draw on theories of cultural dynamics and the literature on team cognitive diversity to investigate the creation of a new venture's culture. Specifically, we theorize how a founding team's cognitive diversity impacts the team's production of cultural information and the transmission of that information throughout the venture. Cognitive diversity directly influences the founding team's production of cultural information by shaping the diversity of the information set and the speed of its production. Moreover, cognitive diversity can give rise to faultlines within the venture, impacting how venture members interpret cultural information. Importantly, our model suggests a complex interplay between the production and interpretation of cultural information. Understanding culture creation in new ventures is important because a new venture's culture shapes its legitimacy and thus its access to stakeholder resources for venture emergence.     

Ethnic-immigrants in founding teams: Effects on prospector strategy and performance in new Internet ventures

We investigated differences in strategy and performance between new Internet ventures with ethnic-immigrant members in the founding team and a matched set of Internet ventures with non-ethnic-non-immigrant team members. Results showed that new ventures with an ethnic-immigrant presence in the founding teams tended to pursue a more aggressive prospector strategy than those with non-ethnic-non-immigrant founding team members. Still, performance of the two groups of ventures was comparable. However, the positive effects of ethnic-immigrant presence on founding teams depended on team size and average age of the founding team members.     

Team interpersonal process effectiveness in venture partnerships and its connection to perceived success

Many business ventures are started by entrepreneurial teams, and an extensive theoretical literature suggests that the interpersonal process of these teams impact venture performance. Whereas some work has been done to identify key issues in how well such teams work together, there has been no in-depth research to develop an instrument to measure specific dimensions of interpersonal process effectiveness. This article documents the importance of venture business, develops a measure to evaluate venture team interpersonal process effectiveness, and shows the relationship of interpersonal process effectiveness and partner agreement on specific aspects of interpersonal process to reports of venture success.Over 190 venture dyads were surveyed such that each partner evaluated themselves and their partner on items describing team interpersonalprocess. We found four dimensions for team interpersonal process: leadership, interpersonal flexibility, team commitment, and helpfulness. Leadership involved partners who contributed to the leadership functions of problem-solving, setting quality standards, continually improving, and setting goals. Interpersonal flexibility described partner exchange with the other partner. Team commitment meant having enthusiasm for team performance and focusing on common team goals. The final element was helpfulness, which involved helping their partner beyond what was required and being friendly and cooperative.We defined successfully perceived ventures as those in which the two partners independently agreed on evaluating the business to be both growing and profitable. Venture businesses that were described by the partners as not growing and/or not profitable were defined as less successfully perceived ventures. Teams that evaluated themselves as more effective on team interpersonal process also regarded themselves as more successful venture businesses. The factors that were evaluated as more effective in successfully perceived ventures were leadership, team commitment, and their mutual interaction.Our agreement hypothesis held for all three interpersonal perception perspectives. The first agreement correlation is a comparison of partner self-evaluations. The more successfully perceived ventures rated themselves similarly; the less successfully perceived ventures did not. The second agreement correlation was a comparison of what partners thought of each other and is the source of many interpersonal assumptions (Wilmot 1979). Partners from successfully perceived ventures agreed with each other, whereas the less successfully perceived ventures did not. The third agreement analysis was particularly noteworthy. It involved a comparison of one partner's self-rating with how the other partner rated him/her. In addition to mere agreement, this represents an interpersonal verification or validity check between separate perceptual systems. As partners, this correlation suggests that you understand my contribution to the team in the same way that I understand my contribution to the team. When there is agreement on this perspective, miscommunication and interpersonal conflict may become less likely. As with the other two agreement indices, partners from successfully perceived ventures showed more agreement than partners in less successfully perceived ventures. An important notion is the use of these three perspectives to more fully utilize the team effectiveness instrument. Each of the perceptual perspectives is different, and a breakdown in one perspective may not always show in the others. However each view is critical to maintaining effective team interpersonal process.To develop a venture dyad, we suggest using our instrument as a tool to enhance a team's interpersonal process. When using an interpersonal method with venture dyads, there are several issues we should consider. First, team interpersonal process issues can be sensitive topics for discussion. In some cases, relationship building with a third party may be needed for this approach to be constructive. Second, a third party, familiar with team interpersonal process, should have a team meeting with the participants to establish a common vocabulary regarding our team concepts. Third, additional team interpersonal process items could be provided by the team to better fit the idiosyncrasies of each dyad.     

Venture capitalists' decision criteria in new venture evaluation

What criteria do venture capitalists use to make venture investment decisions? The criteria venture capitalists use to make their venture investment decisions are of interest for several reasons. First, venture capitalists are conspicuously successful in their investment decisions. The success rate of venture capital-backed ventures is significantly higher than the success rate of new ventures generally (Dorsey 1979: Davis and Stetson 1984). A better understanding of the criteria used could lead to a better understanding of the reasons for this success.Second, a better understanding of the criteria for successful new ventures could lead to an improvement in the success rate of new ventures. Although there is no clear agreement on the precise rate, the failure rate among new ventures is generally viewed as significantly higher than the average failure rate (Dun and Bradstreet 1984; Van de Ven 1980; Shapero 1981).Finally, venture capitalists' investment criteria are of enormous import to entrepreneurs seeking venture funding. Such entrepreneurs require a significant infusion of capital in order to grow their businesses, and knowledge of the criteria sought by venture capitalists can aid entrepreneurs in gaining the necessary financing.This study attempts to uncover the criteria used by venture capitalists through semistructured interviews and verbal protocol analysis of venture capitalists' evaluations of actual venture proposals. Sixteen verbal protocols—in which the participants “think aloud” as they review business proposals— were made of venture capitalists' venture evaluation decisions.The findings of this study suggest that venture capitalists screen and assess business proposals very rapidly: the subjects in this study reached a GO/NO-GO decision in an average of less than six minutes on initial screening and less than 21 minutes on proposal assessment. In venture capitalists' initial proposal screening, key criteria identified include fit with the venture firm's lending guidelines and the long-term growth and profitability of the industry in which the proposed business will operate. In the second stage of proposal assessment, the source of the business proposal also played a major role in the venture capitalists' interest in the plan, with proposals previously reviewed by persons known and trusted by the venture capitalist receiving a high level of interest.In addition to the specific criteria identified and how they were used in reaching GO/NO-GO decisions, the findings of this study also were surprising for the lack of importance venture capitalists attached to the entrepreneur/entrepreneurial team and the strategy of the proposed venture during these early stages of the venture evaluation process.     

Entrepreneurial visions in founding teams: Conceptualization,emergence, and effects on opportunity development

Prior research on entrepreneurial visions has typically taken a leadership perspective and explored how the founders’ future images of their ventures motivate themselves and followers. Drawing on an upper echelon perspective and longitudinal case studies of eight founding teams, this study finds that founders’ entrepreneurial visions do not only capture the future images of their ventures, but also the future images of the founders’ relationship with it. Taking into account this personal aspect of visions, we show that within a founding team, the members’ visions can be incongruent, i.e., they cannot be realized simultaneously within the current venture. While our data reveal that vision incongruence tends to occurs when all team members perceive to have an equal status, vision congruence emerges when the attributed status in the team is heterogeneous. Founding teams with more congruent visions tend to follow a focused opportunity development path, while those with less congruent visions tend to follow a comprehensive opportunity development path. Depending on the teams’ behaviors in the face of challenging situations either path can lead to successful opportunity commercialization or failure. We discuss the implications of these findings for the literatures on entrepreneurial visions, opportunities, and upper echelons.     

Birds of a feather get lost together: new venture team composition and performance

This study explores the relationship between new venture team composition and new venture persistence and performance over time. We examine the team characteristics of a 5-year panel study of 202 new venture teams and new venture performance. Our study makes two contributions. First, we extend earlier research concerning homophily theories of the prevalence of homogeneous teams. Using structural event analysis we demonstrate that team members?? start-up experience is important in this context. Second, we attempt to reconcile conflicting evidence concerning the influence of team homogeneity on performance by considering the element of time. We hypothesize that higher team homogeneity is positively related to short term outcomes, but is less effective in the longer term. Our results confirm a difference over time. We find that more homogeneous teams are less likely to be higher performing in the long term. However, we find no relationship between team homogeneity and short-term performance outcomes.     

Cash crisis in newly public Internet-based firms: an empirical analysis

This study examines why, even when financial resource constraints are significantly relaxed, some new ventures struggle to survive while others prosper. Using the data of approximately 200 new Internet ventures that went public during the years 1997 through 1999, we propose that the performance of new ventures is a function of pre-initial public offering (IPO) characteristics. We determined that firm-level characteristics, including top management team (TMT), financial position, networks, and location, are related to the performance of struggling new ventures. We found strong evidence of agency relationships, so that a substantial reduction in equity holdings by the entrepreneurial team is a strong signal of impending crisis. Interestingly, similar reductions by venture capital (VC) backers did not serve as a signal of crisis.     

An examination of the influence of industry structure on eight alternative measures of new venture performance for high potential independent new ventures

This study examined the influence of the structure of new ventures’ entered industries on eight alternative measures of new venture performance for 199 high potential independent new ventures. Each of the 199 entrepreneurial ventures had undertaken an initial public offering (IPO) within the first 6 years of the venture’s founding date and were free of corporate sponsorship or prior corporate parentage.Specifically, this research examined the influence of: (1) stage of the life cycle; (2) industry concentration; (3) entry barriers; and (4) product differentiation on eight alternative measures of new venture performance. The eight measures of new venture performance examined in this research consisted of: (1) change in sales; (2) sales level; (3) net profit; (4) earnings before interest and taxes; (5) return on sales; (6) return on assets; (7) return on invested capital; and (8) return on equity.Most prior research examining the influence of industry structure on new venture performance has: (1) utilized only one or two measures of new venture performance as indicators of the venture’s overall effectiveness and efficiency; (2) often failed to provide theoretical justification for the measure(s) of new venture performance or industry structure examined; and (3) utilized data derived from questionnaires and/or the PIMS data base of corporate-sponsored new ventures. In addition, prior industry structure studies examining independent new ventures have often utilized relatively small sample sizes.This study sought to advance the progress in the field of entrepreneurship with regard to understanding the influence of the structure of new ventures’ entered industries on new venture performance by: (1) examining eight alternative measures of new venture performance; (2) providing theoretical justification for the measures of new venture performance and industry structure examined; and (3) utilizing the largest nonquestionnaire data base of independent new ventures developed to date.This research found that the stage of the life cycle of the venture’s entered industry was the most important determinant of new venture performance among the four industry structural elements examined. Stage of the life cycle had a statistically significant relationship, at a 0.05 level, with the majority of the new venture performance measures examined in this research. In addition, ventures entering industries in the introductory stage of the life cycle achieved the highest levels of venture performance, particularly when compared with those ventures that entered industries in the mature stage of the life cycle.However, this study did not find a statistically significant relationship between stage of the life cycle and change in sales. This suggests that there is a trade-off between profitability and sales growth, and that new ventures that undertake an IPO have a stronger focus on achieving profitable operations rather than sales growth during the initial years after their IPO. This may be due to pressures placed on the new ventures to achieve profitability by the external credit market.Conversely, this research found that: (1) industry concentration; (2) entry barriers; and (3) product differentiation did not have statistically significant relationships, at a 0.10 level, with any of the eight alternative measures of new venture performance examined in this research. However, this research did find that over 90% of the new ventures entered industries characterized by: (1) a low degree of industry concentration and (2) a high degree of product differentiation.The relative absence of new venture entry into industries characterized by: (1) high degrees of concentration and (2) low degrees of product differentiation provides support for prior theory, which suggests that successful entry into such industry environments may be substantially more difficult.In sum, the results of this research suggest that high potential independent new ventures that undertake an IPO should enter industries in the introductory stage of the life cycle. In addition, the results of this research suggest that industries characterized by: (1) relatively low degrees of industry concentration and (2) highly heterogenous products may be necessary but not sufficient conditions for successful entry by high potential independent new ventures seeking to raise equity capital through an IPO.     

Understanding the dynamics of new venture top management teams: cohesion,conflict, and new venture performance

Research conducted under the upper echelon perspective has produced consistent evidence of a relationship between top management team (TMT) interaction and firm performance. We draw upon and extend this research in an effort to explain new venture performance as a function of cohesion and conflict within the top management team. Based upon data collected from a sample of 70 new ventures, we find that TMT cohesion is negatively related to affective conflict and positively related to cognitive conflict. As expected then, we also find that TMT cohesion is positively related to new venture growth.     

Linking prefunding factors and high-technology venture success: An exploratory study

This study reports on the exploratory phase of a research project on prefunding factors influencing the success of high-technology start-up companies. The study was done in collaboration with two major West Coast venture capital firms that allowed the authors full access to the due diligence files, investment proposals, and closing documents associated with eight ventures. Half of the eight ventures studied are currently public companies with sales that range from $65 million to $500 million and with an after-tax profit of about 10% of sales. The other half have either been dissolved or did not reach $3 million in sales within the five years following their funding.Information was obtained on those prefunding factors that were available for investor review prior to funding, such as the founders track records, the characteristics of the founding team, the nature of the target market, the technological strategy of the firm, the proposed composition of the board, and the deal structure.In spite of the small sample size, findings of this research revealed discernible differences between successful and unsuccessful firms. The founders of the successful ventures had more prior experience working together; tended to form larger, more complete teams; and had more extensive experience in the function they performed in the new venture. Successful founders also had experience in rapid growth firms that competed in the same industry as the start-up.The successful ventures targeted product-market segments with high buyer concentration in which, through technological advantage, their products could attain and sustain a competitive edge. Often this advantage was achieved by careful management of the product-development process, which resulted in early market entry and its corollary, reduced competition.On the other hand, some factors that the authors had predicted would allow them to distinguish between success and failure were not found to do so. Both successful and unsuccessful ventures targeted high growth markets, anticipated high gross margins, had founders with over five years of relevant experience, had experienced venture capitalists on their boards, and were characterized by a wide range of founder equity shares.     

Ambidexterity in new ventures: The impact of new product development alliances and transactive memory systems

Unlike established firms, new ventures often lack the resources and structure necessary to simultaneously pursue exploration and exploitation activities in the process of developing and introducing new products into markets. Thus, it remains unclear whether and how ambidexterity (i.e., simultaneous pursuit of exploration and exploitation activities) can develop in new ventures. This study posits that product development alliances and the transactive memory systems of entrepreneurial teams contribute to new venture ambidexterity. Moreover, we propose that the two mechanisms reinforce one another. Data collected from 148 new Chinese ventures support these hypotheses.     

Social Interaction: A Determinant of Entrepreneurial Team Venture Success

An important issue to explain the success of new ventures is mostly ignored by the research of entrepreneurship: the social interaction within entrepreneurial teams. The purpose of this paper is to introduce the concept of social interaction, which was originally developed for innovation teams in the field of entrepreneurship research and theory.The theoretical discussion proves if an adoption of the social interaction to the field of entrepreneurship is theoretically possible. Using the data of 159 German entrepreneurial teams, the effects of social interaction on new business success are empirically proven. The introduced measurement model, which consists of six dimensions, shows a high quality in the empirical test. The quality of the social interaction within entrepreneurial teams is crucial for the new venture success. An empirical comparison with the frequently used team conflicts confirm that the measurement of conflicts is not a sufficient substitute measurement for social interaction. Overall, the social interaction in entrepreneurial teams could be seen as an important but not only factor of business success.     

The impact of formal processes for market information acquisition and utilization on the performance of Chinese new ventures

The authors examine the performance impact of formal market information processes. Specifically, a theoretical model is developed that hypothesizes that formal processes for market information acquisition and utilization have direct and positive main effects on new venture success and is then tested using a sample of 222 new ventures located in China. Findings indicate that new venture success is positively correlated with the use of formal processes for market information acquisition and use. Moreover, the relative importance of formal processes to the acquisition and use of market information depends on whether the new venture serves an emerging or established market. In particular, the impact of formal processes for information acquisition is higher among new ventures that serve emerging markets. In contrast, the impact of formal processes for information use is higher among new ventures that serve established markets. We present managerial implications of our results. For example, a new venture with a strong market orientation can respond quickly to emerging marketplace needs, and can even seize the advantage from incumbents. If it is in an emerging market, however, the new venture management team should strive to excel at information acquisition; in an established market, it is important for the management team to excel at information utilization.     

Technology commercialization, incubator and venture capital, and new venture performance

This study examines the effects of technology commercialization, incubator and venture capital supports on new venture performance from the resource-based view. This study uses regression analysis to test the hypotheses in a sample of 122 new ventures. The findings highlight the role of technology commercialization as a mediator between organizational resources, innovative capabilities, and new venture performance. Also, the empirical evidence indicates that incubator and venture capital supports moderate the effects of technology commercialization on the performance of new ventures. Finally, this study discusses managerial implications and highlights future research directions.     

Home country institutions,social value orientation,and the internationalization of ventures

We examined how home country formal institutions and the venture’s value orientation influenced the venture’s likelihood of internationalization based on a data set that was adapted from the Global Entrepreneurship Monitor (GEM) data in the year 2009, covering 7668 individual ventures in 25 countries. Better-developed home country formal institutions are found to have a supportive impact on the venture’s likelihood of internationalization. The supportive impact is also found to be weaker for socially oriented ventures than for profit-oriented ventures. The venture’s social value orientation negatively moderates the home country formal institutions–likelihood of internationalization relationship. The negative moderating effects can be explained as follows: Socially oriented ventures in the better-developed home country institutional environment are less likely to develop coping skills against uncertain and risky institutional environments, which are common in their host countries. Besides the theoretical contributions, this paper also highlights the implications for both business researchers and policy makers.     

Dysfunctional competition & innovation strategy of new ventures as they mature

Drawing on a sample of 288 new ventures from three disperse locations in China, we examine how dysfunctional competition impacts the innovation strategy of new ventures as they mature. Our results show that: 1) innovation strategy has a positive effect on new venture competitive advantage; 2) the impact of dysfunctional competition positively moderates this relationship in the early stages of the venture; 3) dysfunctional competition negatively moderates it as the venture matures. Thus, dysfunctional competition forces new ventures to focus on their resource shortages through innovation strategy. However, as these ventures mature, they accumulate greater resources, and dysfunctional competition acts to limit the firm's competitive advantage. With these findings, we contribute to the theoretical understanding of innovation strategy in a dysfunctional competition environment and how new ventures strive for competitive advantage in such a setting.     

Newness and novelty: Relating top management team composition to new venture performance

We distinguish novelty from newness and argue that the tasks of new venture top management teams vary with new venture novelty. We argue that as novelty increases, the information processing requirements on the TMT change as well. Because a team's demographic characteristics influence its information processing abilities, venture performance should reflect, at least partially, the fit between the characteristics of the TMT and the level of venture novelty. Evidence from a large sample of ventures supports this view.     

Parent inheritance,founder expertise,and venture strategy: Determinants of new venture knowledge impact

A genealogical theory of new venture creation posits that “parent” firm routines are transferred to “progeny” ventures founded by the former employees of these parents. This study examines how the knowledge available to a venture from its parent firms and individual founders, as well as its initial technological direction, influences its own creation of impactful knowledge. We argue that new knowledge creation involves the recombination of underlying knowledge elements and hypothesize that the degree to which the venture's knowledge domain overlaps with the parents' knowledge has positive, but diminishing effects on the impact of knowledge created by the venture. We also predict that the breadth of founders' personal knowledge has a positive effect, but that the divergence between individual founders' and parent firm's knowledge domains has a negative effect on the creation of impactful knowledge by the venture. We test our predictions using a sample of 219 biotechnology ventures founded over the eleven year period 1990–2000 and tracked through 2010. Our results contribute to the entrepreneurship, knowledge creation, and genealogical literatures.