New venture creation: innovativeness, speed-to-breakeven and revenue tradeoffs

Estrin, Saul ORCID: 0000-0002-3447-8593, Herrmann, Andrea, Levesque, Moren, Mickiewicz, Tomasz and Sanders, Mark (2024) New venture creation: innovativeness, speed-to-breakeven and revenue tradeoffs. CEP Discussion Papers (CEPDP2054). London School of Economics and Political Science. Centre for Economic Performance, London, UK.

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Abstract

We present a Schumpeterian growth model with new venture creation, under uncertainty, which explains the tradeoff between speed-to-breakeven, revenue-at-breakeven and relates this to the level of innovation. We then explore the tradeoffs between these outcomes empirically in a unique sample of 331 information and communication technology (ICT) ventures using a multi-input, multi-output stochastic frontier model. We estimate the contribution of financial capital and labor input to the outcomes and the tradeoffs between them, as well as address heterogeneity across ventures. We find that more innovative (and therefore more uncertain) ventures have lower speed-to-breakeven and/or lower revenue-at-breakeven. Moreover, for all innovativeness levels, new ventures face a tradeoff between speed-to-breakeven and revenue-at-breakeven. Our results suggest that it is the availability of proprietary resources (founder equity and labor) that helps ventures overcome bottlenecks in the innovation process, and we propose a line of research to explain the (large) unexplained variation in venture creation efficiency.

Item Type:	Monograph (Discussion Paper)
Official URL:	https://cep.lse.ac.uk/_new/publications/discussion...
Additional Information:	© 2024 The Author(s)
Divisions:	Management Centre for Economic Performance
Subjects:	H Social Sciences > HC Economic History and Conditions
JEL classification:	O - Economic Development, Technological Change, and Growth > O3 - Technological Change; Research and Development > O31 - Innovation and Invention: Processes and Incentives L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior > L29 - Other
Date Deposited:	13 Feb 2025 16:09
Last Modified:	13 Feb 2025 16:09
URI:	http://eprints.lse.ac.uk/id/eprint/126789

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