New venture creation: innovativeness, speed-to-breakeven and revenue tradeoffs

Saul Estrin, Andrea Herrmann, Moren Levesque, Tomasz Mickiewicz and Mark Sanders

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: We present a Schumpeterian growth model with new venture creation, under uncertainty, which explains the tradeoff between speed-to-breakeven, revenue-at-breakeven and relates this to the level of innovation. We then explore the tradeoffs between these outcomes empirically in a unique sample of 331 information and communication technology (ICT) ventures using a multi-input, multi-output stochastic frontier model. We estimate the contribution of financial capital and labor input to the outcomes and the tradeoffs between them, as well as address heterogeneity across ventures. We find that more innovative (and therefore more uncertain) ventures have lower speed-to-breakeven and/or lower revenue-at-breakeven. Moreover, for all innovativeness levels, new ventures face a tradeoff between speed-to-breakeven and revenue-at-breakeven. Our results suggest that it is the availability of proprietary resources (founder equity and labor) that helps ventures overcome bottlenecks in the innovation process, and we propose a line of research to explain the (large) unexplained variation in venture creation efficiency.

Keywords: entrepreneurship; innovation; new venture creation; proprietary resources; stochastic frontier analysis; schumpeterian growth model (search for similar items in EconPapers)
JEL-codes: L29 O31 (search for similar items in EconPapers)
Pages: 60 pages
Date: 2024-11-15
New Economics Papers: this item is included in nep-cse, nep-eff, nep-ent, nep-ict, nep-mac and nep-sbm
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