Startup Acquisitions, Relocation, and Employee Entrepreneurship

Abstract

The past few decades have seen a significant increase in the acquisitions of startups by incumbents, raising concerns regarding their potential anti-competitive effects. By developing a dynamic perspective, this study argues that these acquisitions can prompt acquired employees to leave to launch their own ventures, which reflect an often-overlooked long term aspect of acquisitions. We provide empirical support for this argument by analyzing employee-employer matched data from US Census on high-tech startup acquisitions and their workforce in 1990-2011. Moreover, effects on employee entrepreneurship are amplified when the target startup is relocated to the acquirer’s location, and largely muted when left in its original location. Overall, our study highlights the importance of post-acquisition mobility patterns in shaping the dynamics of incumbents’ acquisitions of entrepreneurial firms.

Keywords: M&A, Entrepreneurship, Employee Mobility, Startup Acquisitions

JEL Classification: L26, G34, M13