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

  • Paul Gompers
  • Josh Lerner
  • David Scharfstein

This paper examines the factors that lead to the creation of venture capital backed start-ups, a process we term entrepreneurial spawning.' We contrast two alternative views of the spawning process. In one view, employees of established firms are trained and conditioned to be entrepreneurs by being exposed to the entrepreneurial process and by working in a network of entrepreneurs and venture capitalists. Alternatively, individuals become entrepreneurs because the large bureaucratic companies for which they work are reluctant to fund their entrepreneurial ideas. Controlling for a firm's size, patent portfolio and industry, we find that the most prolific spawning firms were public companies located in Silicon Valley and Massachusetts that were themselves once venture capital backed. Less diversified firms are also more likely to spawn new firms. Spawning levels for these firms rise as their sales growth declines. Firms based in Silicon Valley and Massachusetts and originally backed by venture capitalists are more likely to spawn firms only peripherally related to their core businesses. Overall, these findings appear to be more consistent with the view that entrepreneurial learning and networks are important factors in the creation of venture capital backed firms.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9816.

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Date of creation: Jul 2003
Date of revision:
Publication status: published as Gompers, Paul, Josh Lerner and David Scharfstein. "Entrepreneurial Spawning: Public Corporations and the Formation of New Ventures, 1986-1999." Journal of Finance 60, 2 (April 2005): 577-614.
Handle: RePEc:nbr:nberwo:9816
Note: CF
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  1. Thomas Hellmann, 2007. "When Do Employees Become Entrepreneurs?," Management Science, INFORMS, vol. 53(6), pages 919-933, June.
  2. David S. Scharfstein & Jeremy C. Stein, 2000. "The Dark Side of Internal Capital Markets: Divisional Rent-Seeking and Inefficient Investment," Journal of Finance, American Finance Association, vol. 55(6), pages 2537-2564, December.
  3. Mitchell, Mark L & Lehn, Kenneth, 1990. "Do Bad Bidders Become Good Targets?," Journal of Political Economy, University of Chicago Press, vol. 98(2), pages 372-98, April.
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  5. Steven N. Kaplan & Per Stromberg, 2000. "Financial Contracting Theory Meets the Real World: An Empirical Analysis of Venture Capital Contracts," NBER Working Papers 7660, National Bureau of Economic Research, Inc.
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  8. Josh Lerner, 1996. "The Government as Venture Capitalist: The Long-Run Effects of the SBIR Program," NBER Working Papers 5753, National Bureau of Economic Research, Inc.
  9. Holmes, T.J. & Schmitz, J.A., 1988. "A Theory Of Enterpreneurship And Its Application To The Study Of Business Transfers," Working papers 8827, Wisconsin Madison - Social Systems.
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  12. Denis Gromb & David Scharfstein, 2002. "Entrepreneurship in Equilibrium," NBER Working Papers 9001, National Bureau of Economic Research, Inc.
  13. Hall, B. & Jaffe, A. & Trajtenberg, M., 2001. "The NBER Patent Citations Data File: Lessons, Insights and Methodological Tools," Papers 2001-29, Tel Aviv.
  14. Hellmann, Thomas & Puri, Manju, 2000. "The Interaction between Product Market and Financing Strategy: The Role of Venture Capital," Review of Financial Studies, Society for Financial Studies, vol. 13(4), pages 959-84.
  15. Adam B. Jaffe & Manuel Trajtenberg, 2005. "Patents, Citations, and Innovations: A Window on the Knowledge Economy," MIT Press Books, The MIT Press, edition 1, volume 1, number 026260065x, June.
  16. Antoinette Schoar, 2002. "Effects of Corporate Diversification on Productivity," Journal of Finance, American Finance Association, vol. 57(6), pages 2379-2403, December.
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