Sorting into Entrepreneurial Teams

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This paper studies how entrepreneurs sort into teams and how team entrepreneurship affects the equilibrium distribution of firms. Leveraging employer-employee administrative records matched with private companies' balance sheet data for Portugal, we show that firms of entrepreneurial teams have higher sales, productivity and survival rates than those of single entrepreneurs. We then exploit information on agents’ careers before opening a firm to establish that there is a strong degree of sorting in entrepreneurial teams along observed and unobserved heterogeneity. A novel theory of career choices and team formation rationalizes why similarity in entrepreneurs’ overall talent and dissimilarity in their skill specialization lead to better firm outcomes, providing insights into the micro-foundations of firm growth.