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Prior studies have shown that the acquisition of relevant knowledge by employees in existing firms is associated with the creation of new firms through employee entrepreneurship. Some researchers propose that the transition to entrepreneurship may be explained by established firms undervaluing knowledge created by employees, whereas other scholars maintain that firm strategies may lead to the underutilization of knowledge. We ask the question of which of these drivers is more pronounced as an explanation of employee entrepreneurship and what technological factors matter in this relationship. Analyzing a unique data set, we find that the likelihood of employee entrepreneurship increases with the inventor’s assessment of the value of a patent for an invention developed while at the incumbent firm but dramatically decreases when the invention protected by the patent is commercialized by the firm, licensed to third parties, interdependent with other firms’ inventions protected by patents, or technologically broad. We also find that conditional on high valuation by the inventor, a matching high valuation by the firm further increases the likelihood of transitioning to entrepreneurship. In combination, we show that a situation when both the inventor and the firm consider the invention valuable but the firm ends up not commercializing the invention is more predictive of employee entrepreneurship than simple differences in assessing the value of the invention. The study refines our understanding of the drivers of entrepreneurship by underscoring the “strategic” explanation of employee entrepreneurship.

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Research summary One of the established findings in the spinout literature is that founders with prior industry experience assemble larger entrepreneurial teams and create better‐performing startups. We examine the role of prior industry experience in the startups' next stage—its hiring of new employees. We tackle two empirical challenges—the mutual aspect of hiring and the effect of unobserved variables on employees' earnings using a two‐sided matching model. Our results reveal that even firms founded by entrepreneurs without industry experience can attract new employees with such experience if the founders start with a large entrepreneurial team. Further, startups provide new hires with an earnings premium for their industry experience. Our approach illustrates the benefits of matching models over traditional regressions. Managerial summary Growing startups face the question of who to hire and how much to compensate the new hires. Simultaneously, prospective new hires ask which startup to join and how much their salary will be. We explore these questions using a novel method that tackles the mutual selection process. In the context of five technological manufacturing industries, we find that having industry experience within founding teams may not be necessary to attract new hires with high quality if the startup can signal its own quality through other means such as having a larger founding team. Our results indicate that startups prefer employees with industry experience for which startups offer a wage premium. Thus, employees seeking startup employment benefit from gaining industry experience prior to joining a startup. A video abstract is available at https://youtu.be/w00YzYi5VqA.

This chapter provides a review of the scholarly literature on entrepreneurial teams and team formation. It pays special attention to two emerging areas of research that present many promising opportunities for future work. First, the chapter discusses the role of resource transfer in the context of start-up firms. It argues that an understanding of the antecedents and consequences of the founding process would be significantly advanced by more explicit theorizing and effort to empirically identify the specific types of resources entrepreneurial team members bring to start-up firms. It highlights one recent advancement in this space—work that has focused on a team’s ability to transfer customer and client relationships from the parent to start-up firms—and provides an outline of open research questions in this realm. Second, the chapter provides a primer on a recent methodological advancement—the use of two-sided assortative matching models—that can be applied to entrepreneurial team assembly to alleviate ongoing concerns that team formation is fundamentally an endogenous process. It demonstrates how these models can be applied using a wide variety of founder, cofounder, and early team member attributes, including an individual’s ability to transfer customer relationships. Importantly, it proposes that synergies emerging from the use of two-sided assortative matching models to study a broader set of team member attributes that include resource transfer will open promising new avenues for future research.