Entrepreneurial Spawning: Public Corporations and the Genesis of New Ventures, 1986 to 1999

Abstract

Two views of the entrepreneurial spawning process areexamined— that young firms prepare employees to be entrepreneurs by educatingthem about the entrepreneurial process and by exposing them to a network ofentrepreneurs and venture capitalists; and that individuals becomeentrepreneurs because the large bureaucratic companies for which they work arereluctant to fund their entrepreneurial ideas. Analysis of data from VentureOne, on firms that have obtained venturecapital financing, indicates that both types of firms contribute to thecreation of venture capital-backed startups. Young venture-backed companies inSilicon Valley and along Route 128 in Massachusetts appear as large sources ofnew venture capital-backed companies, as do large bureaucratic firms. Also,diversified firms appear to spawn less entrepreneurial activity, notmore. Additional determinants of overall spawning, and of characteristicsof those firms that spawn others are identified.Additional NBER patentcitation data on patent counts, and measures of patent quality and originality,for a sample of firms from the COMPUSTAT database of US public firms, is alsoused to assess overall and technology spawning, in the areas of either computerand communications, or drugs and medical devices, and the relatedness of thestartup to the industry of the spawning parent. (JSD)

Keywords: VentureOne dataset, Patent citations, Entrepreneurial activity, Corporate spinoffs, Entrepreneurial environment, Firm diversification, Venture capital, Startups