Originally found at Phys.org by Avery Ruxer Franklin

A report [in Academy of Management Discoveries] from Alessandro Piazza, assistant professor of strategic management at Rice University's Jones Graduate School of Business; Brian Chung, doctoral candidate at Rice Business; and Dortmund University's Daniel Reese analyzed data on 4,190 new ventures and their founders. They found that "expertise signaling" by founders—self-presentation that might not align with reality when it comes to their experience, skills or background—played a significant role in their companies' success.

Raising capital is usually the single biggest challenge for early-stage companies, and assembling a founding team capable of persuading funders to get on board is increasingly seen as indispensable. Securing capital can trigger even more funding from other venture capitalists or even liquidity events such as a merger or acquisition.

"When predicting (an acquisition or merger), actual expertise was still the strongest predictor. But when it came to raising funds, we were surprised to discover that founders' expertise signaling was actually a more powerful predictor than their actual background and experience," the authors wrote. "Our findings have important practical implications and highlight the need for better theories of the role of the founding team in entrepreneurship and venture financing."

Read the original research in Academy of Management Discoveries