Heritage and survival of spin-offs: Quality of parents and parent-tenure of founders

Seminar arranged by SMG

by Toke Reichenstein (Imperial College London) 

ABSTRACT: Recent studies have shown that entrepreneurs benefit from previous employment in successful firms. This paper extent this literature by studying in greater detail how founder experiences leads to heterogeneous survival rates of new ventures. We study the survival of spin-offs and develop a measure for parent firm tenure. We argue that the length of employment in the parent organization will influence the degree to which a founder is able to replicate and adapt the blueprints of a parent.

Tenure is used as a proxy for the degree of detailed knowledge the founder has acquired from previous employment and hence also how much knowledge a founder is able to transfer to a new start-up. Our results show that longer tenure at a parent firm increase survival chances of spin-offs significantly. In addition, we find that the quality of previous employers has strong effects on the survival chances of start-ups as spin-offs with surviving parent firms are more likely to survive themselves.