Entrepreneurial Spawning: Experience, Education, and Exit

Date01 November 2016
Published date01 November 2016
The Financial Review 51 (2016) 507–525
Entrepreneurial Spawning: Experience,
Education, and Exit
Douglas Cumming
York University
Uwe Walz
Goethe University and SAFE
Jochen Christian Werth
Goethe University
Weinvestigate the career dynamics of high-tech entrepreneurs by analyzing the exit choice
of entrepreneurs: to act as a business angel, to found another firm, or to become dependently
employed. Our detailed data from CrunchBase indicate that founders are more likely to stick
with entrepreneurship as a serial entrepreneur or as an angel investor in cases where the
founder had prior experience either in founding other startups or working for a startup, or had
a “jack-of-all-trades” education.
Keywords: Venture governance, entrepreneurship, entrepreneurial spawning, angel finance,
venture capital, exit
JEL Classifications: G24, G34, L26
Correspondingauthor: York University,Schulich School of Business, 4700 Keele Street, Toronto,Ontario
M3J 1P3, Canada; Phone: 416-736-2100, ext. 77942; Fax 416-736-5687; E-mail: dcumming@schulich.
We owe thanks to the seminar participants at the 2015 Conference on New Trends in Entrepreneurial
Finance in Trier, Germany.We gratefully acknowledge research support from the Research Center SAFE,
funded by the State of Hessen initiative for research LOEWE. Veryhelpful comments and suggestions of
an anonymous referee are gratefully acknowledged.
C2016 The Eastern Finance Association 507
508 D. Cumming et al./The Financial Review 51 (2016) 507–525
1. Introduction
Gompers, Lerner and Scharfstein (2005), Gompers, Kovner, Lerner and Scharf-
stein (2010), and Cumming and Knill (2012) show an important benefit of venture
capital (VC) finance is that it spawns the creation of new ventures. That is, en-
trepreneurs backed by venture capitalists (VCs) tend to form new companies, or
become coaches for new entrepreneurs in the form of business angels, after VCs exit
the venture.
We examine for the firsttime the specific conditions under which entrepreneurs
actually stick with entrepreneurship in the form of starting a new company or be-
coming a business angel. By examining detailed data on the personal characteristics
of these entrepreneurs, we address more precisely the questions of exactly when and
why does entrepreneurial finance lead to the creation of new ventures.
VC-backed firms are among the most dynamic entrepreneurial firmscontributing
significantly to innovation and economic growth (Sapienza, Manigart and Vermeir,
1996; Manigart, Collewaert, Wright, Pruthi, Lockett, Bruining and Landstrom, 2007;
Nahata, 2008; Schwienbacher, 2008; Yung, 2009; Cumming and Johan, 2013; Ritter,
2015; Audretsch, Lehmann, Paleari and Vismara, 2016). This is particularly true for
firms in high-tech industries on which most of VC financing is concentrated.1One of
the key inputs in this process is, besides VC financing, the spirit and human capital of
the founders and entrepreneurs (Bonardo, Paleari and Vismara, 2011; Meoli, Paleari
and Vismara, 2013). While being a decisiveinput in this process, little is known about
the career paths (after leaving the VC-backed venture) and personal backgrounds
of VC-backed entrepreneurs. Papers which address the exit issue of entrepreneurs
mostly focus (exclusively) on non-high-tech firms (e.g., Wennberg and DeTienne,
2014); given the very different type of activities and firms, look into a very different
We aim to narrow this gap in the literature on the analysis of career paths of
entrepreneurs in high-tech firms. We address two main research questions. First, we
relate the entry decision of founders (i.e., whether they have worked for a startup
before, and their founding experience and education) with their exit decision (i.e.,
whether they stick with entrepreneurial activity or become dependently employed).
Second, we investigate other factors of the founders’ exit decision such as the exit
choice of the company itself. By answering both questions, we depict a broader
picture of the dynamics of entrepreneurial careers, their patterns, as well as the
driving forces.
We analyze these dynamics of the career paths of VC-backed entrepreneurs
by using a hand-collected sample of high-tech firms which have received venture
1VC-backed firms also embrace growth capital firms which invest in tangible assets and the acquisition
of other companies. Among initial public offerings (IPOs) from 1980 to 2012, 12% of VC-backed firms
are classified as growth capital-backed (Ritter, 2015).See also Deli and Santhanakrishnan (2010), Hoban
(1978), Jindra and Leshchinskii (2015), and Wang, Wang and Zhang (2013).

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