Pre-entry Knowledge Context and Post-entry Firm Innovation

Abstract

Knowledge contexts are the setting where founders develop informational advantages that serve as the basis for the formation of a new venture. When individuals depart an organization, such as incumbent firms or universities, to launch a new venture they are endowed with knowledge that reflects their prior affiliation and shapes the behavior and performance of their startups. Surprisingly, however, it remains unclear whether differences between the academic or industry knowledge context influences heterogeneity in how firms allocate resources to innovation. Using a sample of over 700 firms and 1,400 founders I address this gap using a mediation model. I find that in knowledge-intensive industries, academic and employee entrepreneurs both allocate substantial financial resources to innovation activities. However, I show that for academic spinouts the key driver of R&D expenditure is R&D employment intensity. In other words, academics form startups with more employees engaged in R&D than founders from other contexts. This reflects both their need to further incubate new technologies and their preference for a research-friendly organizational culture.