Research and teaching
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Ramana Nanda, Sampsa Samila, and Olav Sorenson

We use investment-level data to study performance persistence in venture capital (VC). Consistent with prior studies, we find that each additional IPO among a VC firm’s first ten investments predicts as much as an 8.5% higher IPO rate on its subsequent investments, though this effect erodes with time. In exploring its sources, we document several additional facts: successful outcomes stem in large part from investing in the right places at the right times; VC firms do not persist in their ability to choose the right places and times; but early success does lead to investing more in later rounds and in larger syndicates. This pattern of results seems most consistent with the idea that initial success improves access to deal flow. That preferential access raises the quality of subsequent investments, perpetuating performance differences in initial investments.

Marc Lerchenmueller and Olav Sorenson

We examined the extent to which and why early career transitions have led to women being underrepresented among faculty in the life sciences. We followed the careers of 6,336 scientists from the post-doctoral fellowship stage to becoming a principal investigator (PI) – a critical transition in the academic life sciences. Using a unique dataset that connects individuals’ National Institutes of Health funding histories to their publication records, we found that a large portion of the overall gender gap in the life sciences emerges from this transition. Women transition to being a PI at a 20% lower rate than men. Differences in “productivity” (publication records) can explain about 60% of this lower rate. The remaining differential in the rates appears to stem from gender differences in the returns to similar publication records, with women systematically receiving less credit for highly-cited research.

Valentina Assenova and Olav Sorenson

Entrepreneurs in many emerging economies start their firm informally, without registering with the state. We examine how informality at the time of founding affected the growth and performance of 12,146 firms in 18 countries across sub-Saharan Africa. Our findings indicate that entrepreneurs who registered their firms at founding enjoyed greater success, in terms of sales and employment. But these benefits varied widely across countries. Countries in which people perceive the government as being less corrupt, those in which they have greater trust in the courts, and those with lower levels of ethnic conflict had larger performance benefits associated with being formal. The benefits of firm formalization therefore appear to depend on the socio-political legitimacy of the state.

Organization Science, 28 (2017): 804-818

Olav Sorenson

Why do some regions produce more entrepreneurs than others? An ecological lens provides insight into this question: The demography of organizations in a region – particularly the proportion of small and young em- ployers – shapes many aspects of the environment for would-be entrepreneurs: (i) beliefs about the desirability of founding a firm, (ii) opportunities to learn about entrepreneurship and to build the abilities needed to succeed, and (iii) the ease of acquiring critical resources. Births of new industries and the demise of mature ones can therefore catalyze rapid changes in the rates of entrepreneurship that become self-reinforcing.

Journal of Economic Geography, 17 (2017): 959-974

Do startups pay less?

August 22nd, 2017

M. Diane Burton, Michael S. Dahl, and Olav Sorenson

We analyzed Danish registry data from 1991 to 2006 to determine how firm age and size influence wages. Unadjusted statistics suggest that smaller firms paid less than larger ones and that firm age had little or no bearing on wages. After adjusting for differences in the characteristics of employees hired by these firms, however, we observed both firm age and firm size effects. We found that larger firms paid more than smaller firms for observationally-equivalent individuals but, contrary to conventional wisdom, that younger firms paid more than older firms. The size effect, however, dominates the age effect. Thus, while the typical startup – being both young and small – paid less than a more established employer, the largest ones paid a wage premium.

Industrial and Labor Relations Review, forthcoming.

Sampsa Samila and Olav Sorenson

We argue that social and financial capital have a complementary relationship in fostering innovation, entrepreneurship and economic growth. Using panel data on metropolitan areas in the United States, from 1993 to 2002, our analyses reveal that social integration – in the microgeography of residential patterns – moderates the effect of venture capital, with more integrated regions benefitting more from expansions in the supply of financial capital. Our results remain robust to estimation with an instrumental variable to address potential endogeneity in the geography of venture capital. We also find some evidence for a similar effect from business associations. Our findings support the idea that social structure may contribute importantly to regional economic differences.

American Sociological Review, 82 (2017): 770-795

Summarized in Yale Insights

Olav Sorenson

Does social capital operate differently in China? A long and vibrant literature on the concept of guanxi suggests not only that social capital might have a different character in China but also that it might prove more valuable there to employees and entrepreneurs alike. Drawing on unusually high quality data on Chinese executives, Burt and Burzynska (2017) explore the question of whether the same structural configurations of relationships appear associated with success in China as have been found in the West. Their short answer is yes. In this response, I comment on their article.

Management and Organization Review, 13 (2017): 275-280

Yuan Shi, David M. Waguespack, and Olav Sorenson

The results of archival studies may depend on when researchers analyze data for at least two reasons: (1) databases change over time and (2) the sampling frame, in terms of the period covered, may reflect different environmental conditions. We examined these issues through the replication of Hochberg, Ljungqvist, and Lu’s (2007) research on the centrality of venture capital firms and their performance. We demonstrate (1) that one can reproduce the results in the original article if one uses data downloaded at roughly the same time as the original researchers did, (2) that these results remain fairly robust to even a decade of database updating, but (3) that the results depend sensitively on the sampling frame. Centrality only has a positive relationship to fund performance during boom periods.

Sociological Science, 4 (2017): 107-122

Olav Sorenson, Valentina Assenova, Guan-Cheng Li, Jason Boada, and Lee Fleming

Using data on Kickstarter campaigns and venture capital investments from 2009–2015, we explored whether crowdfunding expanded access to financial capital, in the sense of supporting innovation in more geographically diverse regions than venture capital. Over this period, crowdfunding has supported projects in many regions that have attracted little or no venture capital. Within regions, moreover, the evidence suggests that successful crowdfunding campaigns attract future venture capital investments and that they have been doing so at an increasing rate. Crowdfunding therefore appears to be expanding access to capital to a larger pool of innovators.

Science, 354 (2016): 1526-1528

Supplemental Materials

Replication data and analysis files

Olav Sorenson and Michael S. Dahl

We examine the extent to which the gender wage gap stems from dual-earner couples jointly choosing where to live. If couples locate in places better suited for the man’s employment than for the woman’s, the resulting mismatch of women to employers will de- press women’s wages. Examining data from Denmark, our analyses indicate (i) that Danish couples chose locations with higher expected wages for the man than for the woman, (ii) that the better matching of men in couples to local employers could account for up to 36% of the gender wage gap, and (iii) that the greatest asymmetry in the apparent importance of the man’s versus the woman’s potential earnings occurred among couples with pre-school age children and where the male partner had accounted for a larger share of household income before the potential move.

American Sociological Review,81 (2016): 900-920

Podcast on the paper (interviewed by Cristobal Young)