Startup Acquisitions, Relocation, and Employee Entrepreneurship

Abstract

This study examines the impact of startup acquisition on the acquired employees’ propensity for entrepreneurship. As a new owner, the acquirer may not prioritize acquired employees’ ideas to be commercialized internally, thereby increasing the odds that they are pursued externally. Leveraging employee-employer matched data from US Census on high-tech startup acquisitions and their workforce in 1990-2011, I find that startup acquisitions substantially increase the rate of employee entrepreneurship both within and outside the target firm’s industry. Post-acquisition entrepreneurship is disproportionally concentrated among individuals with high human capital. Moreover, this effect is amplified when the target startup is relocated to the acquirer’s location, and largely muted when left in its original location. Overall, this study highlights startup acquisitions as an important organizational precursor to employee entrepreneurship.

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

JEL Classification: L26, G34, M13