Should I sell my shares to an external buyer? The role of the entrepreneurial team in entrepreneurial exit

Abstract

This article advances the debate on entrepreneurial exit by shedding new light on the role of the entrepreneurial team (ET) in the exit process. We analyse how ET characteristics influence a founder choice to exit by selling shares to an external buyer versus selling to another team member. Our main argument being that ET characteristics indicate the level of team cohesion. In cohesive ETs, members are resistant to the entry of newcomers; thus, they attempt to induce exiting founders to sell their shares to other team members. Accordingly, we formulate hypotheses on how three indicators of ET cohesion (team size, heterogeneity and the presence of family ties within the ET) affect the probability that a founder will exit by selling her shares to an external buyer rather than another ET member. The hypotheses are tested through econometric estimates using data on 986 founders of 365 Italian high-tech entrepreneurial ventures.