The Silver Spoon Gets Tarnished: An Assessment of the Effects of Parent Support on Employee Ventures

Abstract

This paper explores the benefits and limitations of collaborative relationships between employee ventures and their parent firms. Using multiple waves of a nationally representative survey of French startups, we track a matched group of 9,891 employee spin-outs over their first five years of operation. We show that, in their early years, the employee ventures founded with the parents’ support have better survival rates, higher revenue, and more employees than similar non-supported spin-outs. However, we find that the performance advantage of the former diminishes with time, a result consistent with the development of relational inertia. Specifically, we show that the effects of receiving parents’ support on the employee ventures’ revenue and employment growth provide no additional benefits from the spin-outs’ third and fifth years, respectively. We further uncover that, throughout their development, parent-supported spin-outs require fewer investments in tangible assets and incur lower debt than their non-supported counterparts. However, they engage in significantly fewer commercial activities such as prospecting clients, changing prices, and launching direct marketing campaigns.