The New Argonauts: The International Migration of Venture-Backed Companies

Yuan Shi, Olav Sorenson, and David M. Waguespack

We use a novel longitudinal dataset, constructed from 16 downloads of VentureXpert records collected over 20 years, to characterize the international migration of venture-capital-backed startups. We find that: (i) 1078 firms in our sample (1.4%) migrate; (ii) countries with high levels of in-migration also have high levels of out-migration; (iii) migrating firms move to places with more investors; (iv) pre-move investors and their connections most strongly predict migration patterns; and (v) movers raise more money than non-movers, primarily from investors at their destinations. Overall, these patterns appear inconsistent with those expected if startups move primarily in search of talent or customers. Instead, the flows across countries look more like international trade, with startups seeking capital, and social connections between investors defining the shipping lanes.

Strategic Management Journal, in press (OPEN ACCESS)

Summarized in the UCLA Anderson Review

The shape and structure of entrepreneurial and innovative places

Geoffrey Borchhardt and Olav Sorenson

Interactions primarily occur between those living and working in close proximity to one another. This essay explores some consequences of that fact for places. It offers three principle propositions: (1) Compact buildings, neighborhoods, and cities, and denser places, should promote higher rates of entrepreneurship, innovation, and economic growth because they reduce the costs of interaction. (2) More integrated places should also promote entrepreneurship and innovation because the average person in those places interacts with a more diverse set of others. (3) In more segregated and unevenly distributed places, people diverge more, as a function of where within the place they live and work, in their propensities to innovate and to found firms.

Published in Entrepreneurial Ecosystems in Cities & Regions

Preprint available

Managing in the Presence of Hidden Influences

Michael D. Ryall and Olav Sorenson

Theoretical research on organizations generally presumes that their leaders have the ability to direct the organization towards a set of goals. But that presumption depends crucially on the ability of leaders to understand how particular actions or directives would influence organizational outcomes, a problem of causal inference. We develop a formal model of this problem. Our model reveals that hidden (unobserved) influences can stymie inference. However, these hidden influences only become problematic under a specific set of local conditions. That fact further suggests that organizational design features can help to mitigate this problem. We introduce three types of solutions to the problem of inference in the presence of hidden influences — experimentation, illumination, and substitution — and discuss how these solutions relate to a variety of organizational design features.

Does diversity influence innovation and economic growth? It depends on spatial scale

Olav Sorenson

Diversity has been thought to influence innovation and economic growth in many ways. The mechanisms proposed as underlying these relationships interestingly operate at different spatial scales. Differing estimates across levels of spatial resolution therefore provide empirical insight into the processes underlying regional differences in innovation, entrepreneurship, and economic growth. After discussing these mechanisms and why they operate at different spatial scales, this essay revisits a number of the existing studies of diversity through this lens. Diversity appears to have had the largest effects at fine-grained scales, suggesting that its economic value to regions emerges most strongly from facilitating innovation and information exchange through serendipitous interactions.

Research in Organizational Behavior, 43: 100190 (OPEN ACCESS)

Summarized on the UCLA Anderson Review

Entrepreneurship and gentrification

Luisa Gagliardi and Olav Sorenson

How do high-growth startups influence the neighborhoods in which they locate? Using data from the greater London area, we show a positive relationship between entrepreneurship and the subsequent growth of residential real estate prices in a neighborhood. These effects appear concentrated in places that had been cheaper prior to the entry of the entrepreneurs. The demographic composition of these communities also changes in a classic pattern of gentrification, with older, less educated residents being replaced by younger, more educated ones.

UCLA Ziman Center Working Paper 2023-15

Jockeys, horses or teams? The selection of startups by venture capitalists

Tekin Esen, Michael S. Dahl, and Olav Sorenson

How do venture capitalists select startups? Most research to date has focused on the attributes of either the founders (the jockey) or the business idea (the horse) as the determinants of selection. Connecting information from VentureXpert to the Danish registry data allows us to extend this analysis to include information on all employees of startups (the team). To assess the importance of these factors to access to venture capital, our analysis compares startups that received funding to other startups founded at the same time and in the same industry. Consistent with the jockey hypothesis and prior research, we find that firms with more and better educated founders have a higher probability of receiving venture capital. However, high-quality employees appear to matter even more than founders to the probability of being funded.

Journal of Business Venturing Insights, 19: e00383 (OPEN ACCESS)

Summarized on the UCLA Anderson Review

The Silicon Valley Syndrome

Doris Kwon and Olav Sorenson

How does expansion in the high-tech sector influence the broader economy of a region? We demonstrate that an infusion of venture capital in a region leads to: (i) declines in the number of establishments and in employment in non–high-tech industries in the tradable sector; (ii) increases in entry and in employment in the non-tradable sector; and (iii) a rise in income inequality in the non-tradable sector. Expansion in the high-tech sector therefore leads to a less diverse tradable sector and to increasing inequality in the region.

Entrepreneurship Theory & Practice, 47(2): 344-368.

Summarized on the UCLA Anderson Review

Summarized on Yale Insights

Building status in an online community

Inna Smirnova, Markus Reitzig, and Olav Sorenson

We argue that the actions for which actors receive recognition vary as they move up the hierarchy. When actors first enter a community, the community rewards them for their easier-to-evaluate contributions to the community. Eventually, however, as these actors rise in status, further increases in stature come increasingly from engaging in actions that are more difficult to evaluate or even impossible to judge. These dynamics produce a positive feedback loop, in which those who have already been accorded some stature garner even greater status through quality-ambiguous actions. We present evidence from Stack Overflow, an online community, and from two online experiments consistent with these expected patterns.

Organization Science, 33(6): 2519-2540 (OPEN ACCESS)

Summarized on the UCLA Anderson Review

Flat firms, complementary choices, employee effort, and the pyramid principle

Olav Sorenson

I review Markus Reitzig’s book, Get Better at Flatter, and offer some critical observations on why managers might want to flatten their firms and on Reitzig’s advice to them. I also introduce the pyramid principle, a simple theory of why firms might end up taller than they would want to be.

Journal of Organizational Design, 11: 11-14 (OPEN ACCESS)

Do startup employees earn more in the long run?

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

Evaluating the attractiveness of startup employment requires an understanding of both what startups pay and the implications of these jobs for earnings trajectories. Analyzing Danish registry data, we find that employees hired by startups earn roughly 17% less over the next ten years than those hired by large, established firms. About half of this earnings differential stems from sorting—from the fact that startup employees have less human capital. Long-term earnings also vary depending on when individuals are hired. While the earliest employees of startups suffer an earnings penalty, those hired by already-successful startups earn a small premium. Two factors appear to account for the earnings penalties for the early employees: Startups fail at high rates, creating costly spells of unemployment for their (former) employees. Job mobility patterns also diverge: After being employed by a small startup, individuals rarely return to the large employers that pay more.

Organization Science, 32 (3): 587-604 (OPEN ACCESS)

Summarized on the UCLA Anderson Review