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





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    • Paul Gompers, Josh Lerner, and David Scharfstein are at Harvard University and National Bureau of Economic Research. Seminar participants at the Bank of Italy, Berkeley, Boston College, Boston University, Harvard, London Business School, MIT, the NBER, Stanford, the Stockholm Institute for Financial Research, the University of Chicago, and the University of Wisconsin provided useful comments, as did Rebecca Henderson, Steve Kaplan, Steven Klepper, Antoinette Schoar, Rob Stambaugh (the editor), Noam Wasserman, and an anonymous referee. We thank Harvard Business School's Division of Research and the National Science Foundation for financial support. We are grateful for the research assistance of Jason Breen, Jon Daniels, Sonia Koshy, Robin Lee, Jonathan Man, Beatrix Mietke, Oguzhan Ozbas, and Bernard Yoo. We also thank David Witherow of VentureOne and Tracey Boylston of Thomson Delphion for providing us with the data. All errors are our own.


We examine two views of the creation of venture-backed start-ups, or “entrepreneurial spawning.” In one, young firms prepare employees for entrepreneurship, educating them about the process, and exposing them to relevant networks. In the other, individuals become entrepreneurs when large bureaucratic employers do not fund their ideas. Controlling for firm size, patents, and industry, the most prolific spawners are originally venture-backed companies located in Silicon Valley and Massachusetts. Undiversified firms spawn more firms. Silicon Valley, Massachusetts, and originally venture-backed firms typically spawn firms only peripherally related to their core businesses. Overall, entrepreneurial learning and networks appear important in creating venture-backed firms.