The dynamics of forming a technology based start-up : how founders use external advice to improve their firm's chance of succeeding

Abstract

External advice can be a valuable resource for founders of high technology startup companies. As with any resource, the pursuit and efficient use of the external advice resource is one of the greatest challenges for founders. This thesis examines how the founders of eleven US venture-backed high-tech companies leveraged external advice to their advantage. By aggregating data extracted from case-based interviews, the characteristics of advice are fully understood. In particular, insights are made into the types of advice these business focused founders received, the types of advisors they selected and considered influential to the development of their company and the way they were connected to these influential advisors. Organizing the data by companies' business characteristics enabled further insights to be drawn. Notably, there was a significant difference in a variety of the advice sought by first time founders compared with that of more experienced founding teams. First time founders received broader and more tactical advice than did experienced founders. Furthermore, first time founder's advisors were much more likely to act as coaches, instilling confidence and expending effort to mentor these first-timers into successful CEOs. Silicon Valley advisors and others affiliated with Silicon Valley companies were much more likely to introduce the founders to their influential network, which illustrates the rich entrepreneurial nature of Silicon Valley. There was no statistically significant difference in advice characteristics based on the size of their founding team or on type of their industry. Since the eleven companies are private and thriving, the selected performance metric was the amount of venture capital raised per year of existence.

(cont.) This less than ideal performance data clearly shows a positive correlation between the size and experience of the founding team with company performance. However, no correlation between company performance and industry and geography could be determined. Since the advice characteristics that were correlated with performance were similar to those of large experienced teams, it is reasonable to conclude that none of the advice characteristics are predictors of success. It follows rather that advice characteristics are more a reflection of the companies' business characteristics than itself a predictor of venture success.