Innovation-Driven Entrepreneurial Ecosystems: A New Agenda for Measurement and Policy Professor Scott Stern MIT and NBER
#MITREAP 2
Far too often Well-intentioned approaches often end.in the Boulevard of Broken Dreams Many regional efforts to accelerate through entrepreneurship fail to turn ideas into action, or fizzle out after an initial burst of energy and initiative
How can we grow through accelerating innovation-driven entrepreneurial ecosystems?
MIT Regional Entrepreneurship Acceleration Program System Strategy Stakeholders
Engaging more than 30 regions all over the world
MIT IDE Ecosystem Framework Economic Impact Social Progress IDE Ecosystem I-Cap E-Cap Cluster Based Comparative Advantage Cluster Based Comparative Advantage Foundational Institutions
MIT REAP Strategy Alignment between regional comparative advantage, ecosystem capacity, and specific IDE ecosystem priorities Accelerators Diaspora Networks & Immigration Policy Select Your REAP Strategic Interventions Prizes & Competitions Early-stage Capital Approaches
To align stakeholders and policymakers, need for shared understanding Can we develop meaningful and actionable (and real-time) metrics for IDE ecosystem assessments?
Measuring Entrepreneurial Quality: A Predictive Analytics Approach Business Registrations Digital Signatures of Growth Potential Mapping Growth Outcomes onto Digital Signatures to estimate quality for all firms
Our Approach A novel approach to the measurement of entrepreneurial quality, combining three interrelated insights Business Registration as a Practical Requirement for Growth. Some form of business registration (incorporation, partnership, LLC, etc) is a practical and non-controversial requirement for ventures seeking to achieve a meaningful growth outcome. Public, comprehensive and comparable over time and place. Markers of Entrepreneurial Quality are Observable at or Near the Time of Business Registration. Firms with the potential and ambition for a meaningful growth outcome likely have different start-up characteristics including measures directly observable within business registration records (firm name) as well as publicly available measures that can be matched in a systematic manner (e.g., have they applied for a trademark or patent?). Meaningful growth outcomes can be observed with a lag, creating the potential for a mapping between growth and start-up characteristics. Rather than assume the relationship between start-up characteristics and entrepreneurial quality, investigate relative importance of different factors by developing a predictive model of growth based on start-up characteristics Entrepreneurial quality is the estimated probability of growth given startup characteristics. ˆ q i,r,t
Descriptive Statistics Measure Source Description Mean Std. Dev. Firm Outcomes Gets Venture Capital Gets Venture Capital in 2 years Equity Growth (IPO or Acquisition) Business Registration Observables Thomson Reuters VentureXpert Thomson Reuters VentureXpert SDC Platinum IPO and M&A Whether the firm receives any financing. 0.0008 0.028 Whether the firm receives any financing within 2 years of founding. Whether the firm has an equity growth event. 0.0005 0.023 0.0006 Corporation Business Reg. 1 if a firm is a corporation (not an LLC or partnership) 0.589 0.492 Delaware Business Reg. If the firm s jurisdiction is Delaware 0.036 0.186 Short Name Eponymous Intellectual Property Observables Business Reg. Business Reg. If the firm s name length is 3 words or less (including firm type (e.g. inc. )) Business Reg. If the president or CEO share the name of the firm. Trademark USPTO If the firm acquires for a trademark within 1 year of founding. Patent USPTO If the firm acquires for a patent application within 1 year of founding. Observations 10,451,896 0.024 0.468 0.499 0.079 0.270 0.0009 0.031 0.0020 0.045
How do Digital Signatures of Start-Ups Predict Growth? (NB: Prediction NOT Casusal) Change in the Probability of Growth Has Short Name 248% Firm Named after Founder -70% Corporation (Not Partnership or LLC) 405% Trademark in First Year 501% Patent and No Delaware Registration 3,534% No Patent and Delaware Registration 4,470% Both Patent and Delaware Reg. 19,640% Sectoral Controls State Controls Included Included Guzman and Stern, 2016.
A New View of the Skew
A Power Law Distribution for Entrepreneurial Quality 99.95% of firms have a Zipf Distribution Top.05% of firms is steeper, but could be driven by the bounded range of quality (0,1)
Where is Silicon Valley? Science, 2015
The Startup Cartography Project
Entrepreneurial Quality Statistics EQI Entrepreneurial Quality Index (EQI) Average estimated quality within a group of start-ups RECPI Regional Entrepreneurship Cohort Potential Index (RECPI) The number of startups within a particular region expected to later achieve a growth outcome REAI Regional Entrepreneurship Acceleration Index (REAI) Estimates the ability of an ecosystem to convert entrepreneurial potential into realized growth events.
The State of American Entrepreneurship, 2015
Address-Level Visualization of Silicon Valley
RECPI / GDP: The State of American Entrepreneurship Over Time Peak of dot-com bubble RECPI / GDP shows a sharp raise in potential during the late 1990 followed by a drop (but NOT a collapse) in 2001 and more moderate increase after the Great Recession. Nowcasted Index tracks closely and documents boom since 2010 Great Recession Guzman and Stern (2016)
Decline in REAI indicates scaling failure for high-quality US start-ups over past 15 years Guzman and Stern (2016)
Entrepreneurial Quality Has a Strong Relationship to Economic Growth
Relative Percentage Change Potential for Real-Time Policy Evaluation: The US EDA i6 Program Relative Percentage Change 350 300 250 200 150 100 50 0 Change in Entrepreneurial Quantity 2007 2008 2009 2010 2011 2012 2013 2014 2015 i6 Site Portland (City) No changes in quantity 350 300 250 200 150 100 50 0 Changes in Entrepreneurial Quality 2007 2008 2009 2010 2011 2012 2013 2014 2015 i6 Site (Nowcasted) Porltland (Nowcasted) But an upward (noisy) swing upward in quality around i6 site
How has the relationship between universities and entrepreneurship evolved over time? 0.09 Average RECPI by year 0.08 0.07 0.06 0.05 0.04 0.03 0.02 0.01 0 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Without research university With research university
Potential for European Entrepreneurial Quality Statistics: The Case of Spain
Venture Growth with and without Venture Capital Venture without VC Ventures with VC Ventures without Growth 10,438,652 (99.95%) 6,885 (83.3%) Ventures with Growth 4,980 (0.05%) 1,379 (16.7%)
VC Selection Model (50% Random Subsample) DV: Venture Capital Business Registration Observables Corporation 5.523*** (0.649) Short Name 6.039*** (0.517) Eponymous 0.157*** (0.028) Intellectual Property Trademark 1.888** (0.388) Delaware Only 15.62*** (2.191) Patent Only 37.56*** (3.625) Patent and Delaware 121.4*** (20.430) USCMP Industry Dummies Significant Observations 5,225,948 Pseudo-Rsq 0.33
Estimated Entrepreneurial Quality on the Basis of VC Selection is Highly Skewed
VC Likelihood and Equity Growth Outcomes Dependent Variable: Equity Growth (IPO or Acquisition) 50% Test Sample. Firms with VC excluded. (1) (2) Log-Odds of VC Likelihood 2.263*** (0.0286) VC Likelihood (Standardized) 1.105*** (0.00663) State F. E Yes Yes Year F E Yes Yes N 5221901 5221901 pseudo R-sq 0.186 0.095
Estimated Growth Likelihood as a Function of VC Likelihood is Highly Skewed Even for Firms without VC!
Measurement as a Driver of Policy and Acceleration System Strategy Stakeholders
The Challenge of Empowering Stakeholders for Systems-Level Change IDE Ecosystem-led growth is different from traditional economic development approaches Collaboration across key stakeholders is crucial for collective impact and acceleration at the ecosystem level University Entrepreneur Innovation Ecosystem Stakeholder Model Risk Capital Government Corporate
Shared Metrics and Evaluation Enable Stakeholder-Led Evidence-Based Entrepreneurial Acceleration Setting a Common Agenda Shared Metrics & Evaluation Stakeholder Engagement & Communication Action IDE Ecosystem Acceleration Backbone Support Organization
Team London Team Andalucia Team Scotland Team Morocco Team Singapore 38
Can we leverage advances in measurement and data to foster more effective innovation and entrepreneurship policy and programs?
Thanks!! sstern@mit.edu www.scott-stern.com