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New venture creation: innovativeness, speed-to-breakeven and revenue tradeoffs

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  • Estrin, Saul
  • Herrmann, Andrea
  • Levesque, Moren
  • Mickiewicz, Tomasz
  • Sanders, Mark

Abstract

We present a Schumpeterian growth model with new venture creation, under uncertainty, which explains the tradeoff between speed-to-breakeven, revenue-at-breakeven and relates this to the level of innovation. We then explore the tradeoffs between these outcomes empirically in a unique sample of 331 information and communication technology (ICT) ventures using a multi-input, multi-output stochastic frontier model. We estimate the contribution of financial capital and labor input to the outcomes and the tradeoffs between them, as well as address heterogeneity across ventures. We find that more innovative (and therefore more uncertain) ventures have lower speed-to-breakeven and/or lower revenue-at-breakeven. Moreover, for all innovativeness levels, new ventures face a tradeoff between speed-to-breakeven and revenue-at-breakeven. Our results suggest that it is the availability of proprietary resources (founder equity and labor) that helps ventures overcome bottlenecks in the innovation process, and we propose a line of research to explain the (large) unexplained variation in venture creation efficiency.

Suggested Citation

  • Estrin, Saul & Herrmann, Andrea & Levesque, Moren & Mickiewicz, Tomasz & Sanders, Mark, 2024. "New venture creation: innovativeness, speed-to-breakeven and revenue tradeoffs," LSE Research Online Documents on Economics 126789, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:126789
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    References listed on IDEAS

    as
    1. Mikael Samuelsson & Per Davidsson, 2009. "Does venture opportunity variation matter? Investigating systematic process differences between innovative and imitative new ventures," Small Business Economics, Springer, vol. 33(2), pages 229-255, August.
    2. Segerstrom, Paul S & Anant, T C A & Dinopoulos, Elias, 1990. "A Schumpeterian Model of the Product Life Cycle," American Economic Review, American Economic Association, vol. 80(5), pages 1077-1091, December.
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    More about this item

    Keywords

    entrepreneurship; innovation; new venture creation; proprietary resources; stochastic frontier analysis; schumpeterian growth model;
    All these keywords.

    JEL classification:

    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • L29 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Other

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