The Influence of Financial 'Skin in the Game' on New Venture Creation

A common theme in entrepreneurship research is that the founder must be committed inorder for a new venture to succeed. Although investments of time and sweat equity can indicatecommitment, external stakeholders may prefer founders who have made a significant, personalfinancial stake in their nascent ventures. This personal financial commitment is known as “skinin the game.” Founders that invest more of their own money into their ventures signal greater commitment to potential business partners, suppliers, and resource providers.This studyexamines the amount of personal funds invested by 1,214 nascent entrepreneurs in the UnitedStates, between the years of 2005 and 2012. Findings demonstrate that the dollar amount ofpersonal money invested prior to launch does not significantly impact the creation of new firms.However, nascent entrepreneurs that invest larger amounts as a proportion of their net incomeare more likely to succeed and are less likely to disengage from the process. Personal fundsinvested as a proportion of net income may therefore be a better measure of future success thanthe precise amount. This study also shows that the founder’s human capital, perceptions ofcommunity support, and industry characteristics influence startup outcomes.