Using Canadian administrative data, I document that childbirth has substantial and persistent effects on female entrepreneurs’ firm performance and employees’ outcomes. Over the five years after a founder’s first birth, sales, assets, and profits fall by 15–25%. Performance in firms owned by fathers remains unchanged, while firms owned by spouses experience a moderate decline. The drop in firm outcomes spill over to employees of mother-owned firms, who experience a 4% reduction in earnings. Fertility among employees rises after the entrepreneur’s childbirth, suggesting within-firm network effects in family formation. The penalties for mother-owned firms cannot be fully explained by household specialization based on labor market advantage. Childcare availability and progressive gender norms mitigate the adverse effect of childbirth on the entrepreneurship gap.

Entrepreneurs with better diversified portfolios provide more insurance to employees against labor income risk: in a sample of over 524,000 Canadian firms and 858,000 owners, firms owned by more diversified entrepreneurs offer more stable jobs and earnings to employees when faced by idiosyncratic shocks. A one standard deviation increase in owner’s diversification reduces the shock’s pass-through rate to labor layoffs by 13% and to workers’ earnings by 41%. The data are consistent with such insurance being partly provided to retain valuable human capital and partly to avoid costly terminations. There is no evidence of insurance being priced in average wages.