Does Politics Matter in Entrepreneurship? Political Polarization, Nonpartisans, and Entrepreneurial Team Performance

Abstract

Social homophily has been shown to be a feature of entrepreneurial team formation, but its performance implications remain unclear. This paper examines the recent rise of political homophily and its relationship to the performance of entrepreneurial founding teams. We construct a dataset linking more than 10,000 co-founders of over 3,000 California-based startups to their voter registration records from 2007 to 2019. We first document substantial and rising levels of political homophily of venture capital-backed entrepreneurial teams, controlling for other forms of social homophily. We then analyze how team political composition relates to outcomes, focusing on the likelihood and speed of raising subsequent funding rounds. We find that teams composed entirely of similar political partisans underperform relative to politically mixed teams. The highest performing teams possess substantial political heterogeneity, encompassing Democrats, Republicans, and Nonpartisan founders. These reduced form results remain qualitatively consistent in two-stage estimations using time-varying measures of political advertising in each of California’s 14 media markets as instrumental variables. These findings suggest that Nonpartisan founders may serve a cross-cutting or boundary-spanning role, helping teams navigate the coordination challenges of ideological diversity.