Promoting novelty creation: The role of ownership distribution in new venture teams

Abstract Research Summary How is the ownership distribution in new venture teams (NVTs) related to the novelty of a firm's inventions? Using an abductive approach and analyzing 5114 projects from 2148 German firms, we find higher novelty when a majority owner is among the NVT members and when members of NVTs with unequal ownership splits participate directly in inventive projects. Our empirical facts and interview evidence suggest that unequal splits enhance decision‐making mandates, enabling NVTs to avoid consensus deadlocks and empowering owner‐inventors to foster novelty. Notably, the ownership split within the NVT appeared to matter more for novelty than the specific share held by owner‐inventors. These insights contribute to our understanding of the interplay among intra‐team ownership, organizational governance, inventor‐entrepreneurs, and innovative outcomes in entrepreneurial ventures. Managerial Summary At incorporation, new venture teams (NVTs) decide how to divide ownership among themselves. The distribution can vary from equal shares to a majority ownership structure. Ownership distribution can influence how NVTs make decisions under uncertainty and how independently individual NVT members can implement their idiosyncratic technological ideas. Our quantitative and qualitative findings indicate that concentrating ownership with majority owners promotes more radical innovations, while an equal distribution entails the risk of leading only to incremental advances. Additionally, in NVTs with unequal ownership distribution, the participation of NVT members in R&D activities promoted novelty. Therefore, NVTs should carefully consider the implications for decision‐making when determining their ownership distribution, as it can be a strategic tool for promoting innovation.