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 model of new venture creation, under uncertainty, which explains the tradeoff between speed-to-breakeven and revenue-at-breakeven and relates this to the level of innovation. We then explore the tradeoffs between these outcomes empirically in a 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 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 founder labor) that helps ventures overcome bottlenecks in the venture creation process, and we propose a line of research to explain the variation in venture creation efficiency.

Keywords: entrepreneurship; innovation; new venture creation; proprietary resource; Stochastic frontier analysis; Schumpeterian growth model (search for similar items in EconPapers)
JEL-codes: L29 O31 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2025-06-06
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Published in Small Business Economics, 6, June, 2025. ISSN: 0921-898X

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