Survival of innovative entrants in knowledge based sectors

The aim of this paper is to explore how the survival likelihood of innovative entrants in highly dynamic and knowledge intensive industries is affected by the characteristics of such firms at the time of their founding. By innovative entrants here we mean companies that are new to the industry (i.e. they are entrants) and that enter into the market by introducing an innovation. Our methodology to identify such companies has been based on information contained in patent data for two technological fields, i.e. lasers and data switching networks. In particular, for each technological field examined, we have identified all those firms whose first patented invention occurs within a relatively short time after their entry into the industry. For this sample of innovative startups, we have collected further information regarding the date of exit (if any), the background of founders, the background of the inventing team, and the characteristics of the patented invention. Our ultimate aim is to examine the impact of both founders’ and inventing team background on startups’ performance as captured by their survival. It is worth remarking that our methodology differs from the prevailing literature in this field under two main respects. First, while most recent studies investigating the performance of new entrants are based on samples identified using either product definitions or industry classifications, the sample of firms examined here has been extracted starting from a technological classification. Second, our sample does include only innovative startups that enter by patenting. Therefore, it excludes both innovative startups that enter by innovating, but that adopt different appropriability strategies, and truly non-innovative startups, namely firms that are new to the industry, but whose products and technologies do not carry elements of novelty. The main result of our analysis is that the importance of the firm’s innovation at entry, as measured by the number of citations it receives within three years from the priority date, positively affects the firm’s survival. We claim that this variable could proxy for the founder’s previous market related experience and hence the firm’s ability to exploit knowledge about market opportunities and customer needs. Therefore, our interpretation of these results is that the firms in our sample, being all innovative firms, are all well endowed with technological knowledge and that only those better positioned to learn about market opportunities do enjoy a survival advantage. The paper is organized as follows. Section 2 provides a short of review of the background literature. Section 3 describes the basic methodology used in the paper, while section 4 il¬lustrates the main empirical findings from a model estimating the likelihood of survival of innovative startups. Section 5 concludes.