Eesley Second Time

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  • Eesley Second Time

    1. The Second Time Around?: Serial Entrepreneurs from MIT Charles E. Eesley, MIT Sloan School of Management [email_address] Edward B. Roberts, MIT Sloan School of Management [email_address]
    2. Second Time Around? <ul><li>The goal of this paper is to advance our understanding of what factors condition the likelihood that a founder will leave a firm and decide to start a new firm. </li></ul><ul><li>Why is this important? </li></ul><ul><ul><li>Economic impact </li></ul></ul><ul><ul><li>Mentoring role </li></ul></ul>
    3. * + + ++ ++ ** ** Table 1 Estimated Economic Impact of Novice and Repeat Entrepreneurs 48.7 51.3 Percentage of Total Employment 88.2 11.6 Percentage of Total Revenues 77.3 22.7 Percentage of Firms 27.9 72.1 Percentage of Entrepreneurs 878 954 Total Founders in the Sample 3254 954 Total # of Firms Founded 1,285,886 1,353,420 Total Employment $157,029,700 $20,736,000 Total Revenues (in '000 $2001) Repeat Entrepreneurs Novice entrepreneurs (all ages) Category of Entrepreneur
    4. Research Question <ul><li>Who becomes a repeat/serial entrepreneur? </li></ul><ul><li>Are there characteristics of the 1 st start-up experience that condition the likelihood of founding a 2 nd firm? </li></ul><ul><li>Heterogeneity among entrants prior to the development of the venture (Hsu 2006, Sarasvathy 2004) </li></ul><ul><li>Widespread aspect of new firm creation (Cooper 1970) </li></ul>
    5. Prior Literature <ul><li>Limited literature, little theoretical work (Sarasvathy & Monon, 2005) </li></ul><ul><li>Prior experience </li></ul><ul><ul><li>Experience shapes opportunity recognition (McGrath, 1999; McGrath and MacMillan, 2000; Ronstadt, 1988; Shane, 2000) </li></ul></ul><ul><ul><li>Determinants of self-employment (Carroll and Mosakowski, 1987) </li></ul></ul><ul><ul><li>Shane and Khurana 2003 </li></ul></ul><ul><li>Initial conditions </li></ul><ul><ul><li>Founding team: human and social capital </li></ul></ul><ul><ul><li>Linkages to resources: financial and labor resources (Hsu 2006a) </li></ul></ul><ul><ul><li>Differences between serial/portfolio (Westhead & Wright, 1998) </li></ul></ul><ul><ul><li>organizational properties that affect the likelihood of becoming an entrepreneur work in opposite directions for founders vs. organizational members (Dobrev & Barnett, 2005). </li></ul></ul><ul><li>Strategy/Finance </li></ul><ul><ul><li>Skill vs. Luck (Gompers et al. 2005) </li></ul></ul><ul><ul><li>Build up / reinvesting financial, social, human capital (Gimeno, Folta, Cooper, & Woo, 1997) </li></ul></ul>
    6. Prior literature (2) <ul><li>Source of new entrants is incumbent firms in the same industry (Klepper 2001; Gompers, Lerner, and Scharfstein, 2005). </li></ul><ul><ul><li>employees leaving incumbent firms to start new ventures. </li></ul></ul><ul><ul><li>conflict between the spin-off and the incumbent’s top management. </li></ul></ul><ul><li>Finance literature, determinants of CEO turnover and succession (Jenter and Kanaan 2006; Warner, Watts, and Wruck 1988; Gibbons and Murphy 1990). </li></ul><ul><ul><li>focus on large public firms and often on forced CEO turnover in relation to firm and industry performance. </li></ul></ul><ul><li>CEOs who voluntarily leave and what they do after leaving - seldom studied (for important exceptions see Wasserman 2003; Bertrand and Schoar 2003). </li></ul><ul><li>Important gap in our understanding - the founder or CEO who is pushed out or voluntarily leaves a firm and decides to start a new firm. </li></ul><ul><ul><li>The existing theories of spin-off activity do not explain or fit well. </li></ul></ul><ul><ul><li>Existing work on CEO turnover (agency theory and corporate governance of large firms) does not extrapolate well to small private firms (Wasserman 2003, p. 149). </li></ul></ul><ul><ul><li>How prior founding experience should be interpreted (i.e. as a measure of risk aversion, learning, skill, or reduced asymmetric information on quality for investors) which we can see from the plethora of terms in use including: serial, nascent, novice, experienced, portfolio, habitual, second-time, and repeat entrepreneurs. </li></ul></ul>
    7. Reinvestment of capital Successful/skilled entrepreneurs may skip levels or remain at lower levels
    8. Other possibilities <ul><li>Framework along the lines of Jovanovic (1982) and Holmes and Schmitz (1995) </li></ul><ul><ul><li>each start-up experience is a draw giving the founder information on his/her quality as an entrepreneur and this information impacts the decision on whether to found another firm. </li></ul></ul>
    9. Hypotheses <ul><li>Entrepreneurs who have more time remaining in their lives to spend on entrepreneurship will be more likely to start a second firm. </li></ul><ul><li>The higher the success of a prior new venture the greater the likelihood that a subsequent new venture will be undertaken. </li></ul><ul><li>Funding by angel or venture capital investors will decrease costs of future entrepreneurship, be seen as a positive signal to the entrepreneur and will increase the likelihood of starting a second firm. </li></ul><ul><li>All else equal, entrepreneurs who started a first firm with a higher number of cofounders will be more likely to start a second firm. </li></ul>
    10. MIT Data <ul><li>Two data sets </li></ul><ul><ul><li>Long time horizon in the cross section (1930s-2003) </li></ul></ul><ul><li>MIT alumni: 42,930 records in 2001 </li></ul><ul><ul><li>Basic information only: date of birth, country of citizenship, gender, major at MIT, highest attained degree, new venture founding history. </li></ul></ul><ul><ul><li>7,798 indicated founding at least one company </li></ul></ul><ul><li>Survey of self-identified MIT alumni entrepreneurs in 2003 </li></ul><ul><ul><li>2,111 respondents (response rate of about 27%) </li></ul></ul><ul><ul><li>1,004 serial entrepreneurs (res. rate of 31.8%) </li></ul></ul>
    11. Methods <ul><li>Cox Hazard Rate Regressions </li></ul><ul><li>Dependent variable: </li></ul><ul><ul><li>Second start-up founded </li></ul></ul><ul><li>Independent Var. </li></ul><ul><ul><li>Individual level – grad. year, gender, degree, marital status </li></ul></ul><ul><ul><li>First firm level – lag from graduation, IP, source of idea, # cofounders, source of team, funding, industry, performance measures </li></ul></ul>
    12. Categories of Entrepreneurs 878 Multiple startup firms Repeat 848 (over age 59) Has started only 1 firm. Single-firm Number of Observations Definition Category of Entrepreneur
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