1. This paper examines how entrepreneurs choose organizational boundaries when starting new ventures. Entrepreneurs create new opportunities by combining existing assets in novel ways, but this makes them vulnerable to others appropriating the profits if the combinations end up being very valuable. 2. Firms allow entrepreneurs to overcome this problem by gaining control of key assets and appropriating the profits themselves. The paper presents a model analyzing the tradeoff between the risk of others appropriating profits and the costs of taking ownership of assets. 3. The model predicts that entrepreneurs will prefer to start firms when their combinations of assets are rare, valuable, and difficult to imitate, creating what are called "strategic capabilities." This helps the theory of