Tag Archives: entrepreneurship

Venture capital, entrepreneurship, and economic growth

Sampsa Samila and Olav Sorenson

Using a panel of U.S. metropolitan areas from 1993 to 2002, we find that an increase in the local supply of venture capital (VC) positively affects (i) the number of firm starts, (ii) employment, and (iii) aggregate income. Our results remain robust to a wide variety of specifications, including ones that address potential endogeneity in the supply of venture capital. The magnitudes of the effects, moreover, imply that venture capital stimulates the creation of more firms than it directly funds. That result appears consistent with either of two mechanisms: One, would-be entrepreneurs that anticipate a future need for financing more likely start firms when the supply of capital expands. Two, companies funded by venture capital may transfer tacit knowledge to their employees thereby enabling spinoffs, and may encourage both their own employees and others to become entrepreneurs through demonstration effects.

Review of Economics and Statistics, 93 (2011): 338-349

Venture capital as a catalyst to commercialization

Sampsa Samila and Olav Sorenson

We find that public research funding and venture capital have a complementary relationship in fostering innovation and the creation of new firms. Based on a panel of metropolitan areas in the United States from 1993 to 2002, we find that the positive relationships between government research grants and the rates of patenting and firm formation in a region become more pronounced as the supply of venture capital in that region increases. Our results remain robust to estimation with an instrumental variable to address potential endogeneity in the provision of venture capital. Consistent with perspectives that emphasize the importance of an innovation ecosystem, our results therefore point to a strong interaction between private financial intermediation and public research funding in promoting entrepreneurship and growth.

Research Policy, 39 (2010): 1348-1360

The embedded entrepreneur

Michael S. Dahl and Olav Sorenson

Using comprehensive data on the Danish population, this paper examines the determinants of entrepreneurs’ choices of where to locate their newventures. Our findings suggest that entrepreneurs place much more emphasis on being close to family and friends than on regional characteristics that might influence the performance of their ventures when deciding where to locate those businesses. Two factors could explain our findings: On the one hand, entrepreneurs may simply value proximity to family and friends. On the other hand, these relationships may help them to assemble the assets and to recruit the personnel that they need to succeed in their ventures. Our results suggest that the former plays the greater role in entrepreneurs’ location choices.

European Management Review, 6 (2009): 172-181

Entrepreneurship: A field of dreams?

Olav Sorenson and Toby E. Stuart

This paper has two objectives. We begin by contrasting two potential paths for future research in entrepreneurship. One is the establishment of an independent field of research with a clear jurisdiction, a common theoretical canon, and autonomy from related fields. The second is a phenomena-based approach, in which scholars congregate around common interests in empirical phenomena but approach them with distinct disciplinary lenses. After discussing these alternatives and lobbying for the phenomena-based approach, we then review some of the recent, discipline-based research in economic and organizational sociology relevant to entrepreneurship, and identify significant gaps in that literature.

Academy of Management Annals, 2 (2008): 517-543

Strategic networks and entrepreneurial ventures

Toby E. Stuart and Olav Sorenson

Much research suggests that social networks shape the emergence and development of nascent ventures. Scholars have argued that founders’ and firms’ networks influence innovation and the identification of entrepreneurial opportunities, as well as facilitate the mobilization of resources for growth and the harvesting of value from fledgling firms. It is not an exaggeration to claim that existing empirical findings point to the centrality of networks in every aspect of the entrepreneurial process. However, with exceptions so few they may be counted on one hand, this research untenably treats network structures as exogenous—in other words, as if entrepreneurs and enterprises do not pursue valuable connections. In this article, we review the literature on networks in entrepreneurial contexts, argue that it disproportionately focuses on the consequences of networks at the expense of research on their origins, and consider the implications for the literature of the fact that most entrepreneurs and young ventures are strategic in their formation of relations. We then articulate a research agenda composed of five areas of inquiry we consider critical to a better understanding of networks and entrepreneurship.

Strategic Entrepreneurship Journal, 1 (2007): 211-227

Social networks and industrial geography

Olav Sorenson

In many industries, production resides in a small number of highly concentrated regions; for example, several high tech industries cluster in Silicon Valley. Explanations for this phenomenon have focused on how the co-location of firms in an industry might increase the efficiency of production. In contrast, this article argues that industries cluster because entrepreneurs find it difficult to access the information and resources they require when they reside far from the sources of these valuable inputs. Since existing firms often represent the largest pools of these important factors, the current geographic distribution of production places important constraints on entrepreneurial activity. As a result, new foundings tend to arise in the same areas as existing ones, and hence reproduce the industrial geography. In support of this thesis, the article reviews empirical evidence from the shoe manufacturing and biotechnology industries.

Journal of Evolutionary Economics, 13 (2003): 513-527

Liquidity events and the geographic distribution of entrepreneurial activity

Toby E. Stuart and Olav Sorenson

In this paper, we examine the ecological consequences of initial public offerings (IPOs) and acquisitions, specifically how the spatial distribution of these events influences the location-specific founding rates of new companies. We explore whether relatively small spatial units (metropolitan statistical areas) in close geographic proximity to firms that recently have been acquired or experienced an IPO exhibit high new venture creation rates and whether the magnitudes of these effects depend on regional differences in statutes governing the freedom of employees to move between employers. Count models of biotechnology firm foundings establish three findings: (1) IPOs of organizations located contiguous to or within an MSA accelerate the founding rate within that MSA, (2) acquisitions of biotech firms situated near to or within an MSA accelerate the founding rate within the MSA, but only when the acquirer enters from outside of the biotech industry, and (3) the enforceability of post-employment non-compete covenants, which is determined at the state level, strongly moderates these effects.

Administrative Science Quarterly, 48 (2003): 175-201

From conception to birth: Opportunity perception and resource mobilization in entrepreneurship

Jesper B. Sørensen and Olav Sorenson

Studies consistently find regions dense in concentrations of similar firms to be fecund sources of new firms of the same kind. This pattern persists even in industries with negative returns to geographic concentration. Why do these patterns persist? On the one hand, social networks may constrain entrepreneurs’ opportunities, making it difficult to mobilize resources in more attractive locations. On the other hand, nascent entrepreneurs may systematically misperceive opportunities in such a way as to lead them to continue founding attempts in overcrowded regions. To distinguish between these two processes, we analyze a unique set of data on television stations that contains information on both attempts to start new stations, as well as successful foundings. Our exploratory analysis suggests that nascent entrepreneurs do consistently misinterpret information related to population dynamics. These patterns could easily contribute both to industrial agglomeration and to the fragility of Red Queen dynamics. We discuss the implications of these results for both future research and for public policy.

Advances in Strategic Management, 20 (2003): 89-117

The geography of opportunity: Spatial heterogeneity in founding rates and the performance of biotechnology firms

Toby E. Stuart and Olav Sorenson

One of the most commonly observed features of the organization of markets is that similar business enterprises cluster in physical space. In this paper, we develop an explanation for firm co-location in high-technology industries that draws upon a relational account of new venture creation. We argue that industries cluster because entrepreneurs find it difficult to leverage the social ties necessary to mobilize essential resources when they reside far from those resources. Therefore, opportunities for high tech entrepreneurship mirror the distribution of critical resources. The same factors that enable high tech entrepreneurship, however, do not necessary promote firm performance. In the empirical analyses, we investigate the effects of geographic proximity to established biotechnology firms, sources of biotechnology expertise (highly-skilled labor), and venture capitalists on the location-specific founding rates and performance of biotechnology firms. The paper finds that the local conditions that promote new venture creation differ from those that maximize the performance of recently established companies.

Research Policy, 32 (2003): 229-253

The social structure of entrepreneurial activity: Geographic concentration of footwear production in the U.S., 1940-1989

Olav Sorenson and Pino G. Audia

Nearly all industries exhibit geographic concentration. Most theories of the location of industry explain the persistence of these production centers as the result of economic efficiency. This article argues instead that heterogeneity in entrepreneurial opportunities, rather than differential performance, maintains geographic concentration. Entrepreneurs need exposure to existing organizations in the industry to acquire tacit knowledge, obtain important social ties, and build self-confidence. Thus, the current geographic distribution of production places important constraints on entrepreneurial activity. Due to these constraints, new foundings tend to reify the existing geographic distribution of production. Empirical evidence from the shoe industry supports this thesis.

American Journal of Sociology, 106 (2000): 424-462