Sorting into entrepreneurial teams

This paper studies how entrepreneurs sort into founding teams and how team composition shapes the firm distribution. We develop a theory of career choice and team formation in which skill complementarities make team entrepreneurship attractive for agents with unbalanced skill profiles, while talent similarity makes teaming preferable to other career options. Using matched employer-employee and balance-sheet data from Portugal, we show that teams combining similar talent with diverse specializations create larger, more productive, and longer-lived firms; yet founders with dissimilar skills are less likely to start firms together. We calibrate the model to reproduce these patterns and use it to quantify the cost of imperfect founder matching. Counterfactuals show that reducing founders’ biased exposure reallocates activity from low-productivity solo firms toward more productive teams. An optimal-assignment benchmark reveals that even unbiased random search leaves substantial gains unrealized because high-surplus matches fail to form.