Equity Contracts and Incentive Design in Start-Up Teams

• 成果类型: Article
• 署名作者: Kagan, Evgeny; Leider, Stephen; Lovejoy, William S.
• 署名单位: Johns Hopkins University; University of Michigan System; University of Michigan
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2019.3439
• 发表日期: 2020
• 页码: 4879-4898
• 关键词: entrepreneurial operations; CONTRACTING; Start-ups; behavioral operations; INNOVATION

摘要

Entrepreneurial teams assign equity positions in their start-ups using a term sheet that details equity splits and the conditions for being granted those splits. The design of equity split agreements has attracted considerable attention in the entrepreneurial community, with no convergence on a single preferred contract form. This paper experimentally examines the effectiveness of different contractual arrangements, focusing in particular on the effects of contract form and contracting timing on founder effort and on the value of the venture. Our results suggest that performance improves with the incentive strength of the contract, but they question the conventional logic that this effect is causal. Instead, we suggest a novel causal sequence. Rather than the contract form being the primitive and the behavior the derived consequence, our results suggest the reverse. The differences in contract performance are driven primarily by the sorting of high contributors into nonequal contracts and of low contributors into equal contracts; that is, equal contracts are bad for team performance not because of their incentive strength but because of the founder types that adopt them. Taken together, these results suggest that both investors and founders should pay as much (or more) attention to personality type as they do to contract form.