Linking vertically related industries: entry by spinouts across industry boundaries

This article examines vertical spinouts, defined as new independent ventures that enter a focal industry after spinning-out from an established firm in either an upstream or a downstream industry. These spinouts represent a type of organizational structure through which knowledge is shared and transferred between vertically related industries. We propose that a key determinant of both their formation and their successful performance is the contextual knowledge that they inherit from their pre-entry experience in a vertically related industry. We examine spinout entry and performance in three vertically related industries over a ten-year period: semiconductors, telecommunication equipment, telecommunications networks/conectivity . Our results show that vertical spinouts constitute a significant share of new and independent ventures in these related industries and that they are more likely to survive than other new startups. We discuss the implications of our findings for the literatures on entrepreneurship and industry dynamics