Tag Archives: entrepreneurship

Theory, search, and learning

Olav Sorenson

When searching for a solution to a problem, having a theory—an underlying causal structure that explains outcomes as a consequence of antecedents and that allows for the prediction of potential consequences of combinations of choices not yet tried—changes the way in which people explore the solution space. Whether a theory proves useful to search, however, depends not just on its predictive precision. This essay argues that the internal structures of theories—their size, complexity, the extent of their elaboration, and the confidence that their users have in the assumptions—also influences how people search for solutions and the efficiency of their search processes. It offers several conjectures about how theory and theory structure influence search and about which types of theories prove most useful to success.

Strategy Science, 9(4): 372-381 (OPEN ACCESS)

The sociology of entrepreneurship revisited

Tristan L. Botelho, Ranjay Gulati, and Olav Sorenson

Over the last two decades, the sociology of entrepreneurship has exploded as an area of academic inquiry. Most of this research has been focused on understanding the environmental conditions that promote entrepreneurship and processes related to the initial formation of an organization. Despite this surge in activity, many important questions remain open. Only more recently have scholars begun to turn their attention to what happens to organizations, and the people connected to them, as they mature and move through the life cycle of entrepreneurship. These open questions, moreover, connect to many classic themes in the literature on careers, organizational sociology, stratification, and work and occupations. Using a framework that focuses on three phases of the entrepreneurial life cycle—pre-entry, entry, and post-entry—we summarize sociological research on entrepreneurship and highlight opportunities for future research.

Annual Review of Sociology, 50: 341-364 (OPEN ACCESS)

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, 45: 1485-1509 (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

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

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

Do startups pay less?

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, 71(2018): 1179-1200.

Social networks and the geography of entrepreneurship

Print version of Prize Lecture for the Global Award for Entrepreneurship Research, 2018

Olav Sorenson

Social relationships play at least three important roles in entrepreneurship. They help to determine who sees entrepreneurship as an available and desirable career path. Entrepreneurs use their contacts to raise funds for and to recruit employees and partners to their ventures. Social relationships also influence where and when entrepreneurs want to spend their leisure time. Because of these factors, entrepreneurs tend to found their firms in the places that they live (and in the industries in which they have been employed). That, in turn, implies that industries will tend to become and remain concentrated in a small number of places, even when firms do not benefit from this clustering.

Small Business Economics, 51 (2018): 527-537 (OPEN ACCESS)