Joint Lunch Seminar by Sarath Balachandran and Jorge Guzman

Sarath Balachandran and Jorge Guzman
London Business School, UK, and Columbia University, USA
 

Bridges or Barriers? How Venture Capital Portfolio Ties Shape Startups’ Market Entry

Abstract

Startups are often confronted with opportunities to extend their core technologies into new product markets. Such moves hold the promise of creating new customer bases and hedging the risk of failure in existing pursuits, but require expertise in unfamiliar domains which can be costly. We examine how startups’ product market entry decisions are shaped by portfolio ties-connections to other startups backed by the same investor. Portfolio ties to other firms operating in that product market can provide access to relevant expertise that lowers the barriers to entry, but can also constrain entry if investors seek to protect the market positions of those firms. We theorize that these dual mechanisms vary systematically with the stage of development of the related portfolio firm. To test this idea, we exploit the staggered release of the Cancer Genome Atlas, which revealed unexpected genetic links across cancers and thereby generated exogenous opportunities for therapeutic expansion. We find that portfolio ties increase the likelihood of entry on average, especially for startups outside major life-sciences hubs. However, this effect reverses when portfolio peers are near commercialization. Startups with such peers become especially unlikely to enter if those peers are narrowly focused on the market in question.

Sarath Balachandran is an assistant professor at the London Business School. His research is focused on collaboration within and between organizations and in particular on how such collaboration may be shaped by factors relating to the organizational and institutional contexts. He has a Ph.D. from the Wharton School of the University of Pennsylvania.

Predicting Neighborhood Entrepreneurship

Abstract

We document significant heterogeneity in startups per capita across U.S. neighborhoods. Using machine learning models, we study the extent to which a large number of neighborhood attributes—including transportation, demographics, local establishments, income, and neighborhood design—can statistically account for this heterogeneity. A uniform model that considers all neighborhoods simultaneously has an R-squared of 0.68 but moderate bias and, in 14 states, performs worse than using the state mean (negative R-squared). In contrast, an ensemble model that allows for different neighborhood conditions to matter across different states has negligible bias, lower mean squared error, and a positive R-squared for all states. When considering the relationship across the neighborhoods of different states, we find a state’s model predicts well for other states that are similar in geographic or economic structure (such as, Texas to Louisiana or New York to California), but not for dissimilar states. When we move beyond the quantity of startups in a neighborhood to consider the economic potential of a startup cohort, we find that the conditions that predict high average ‘quality’ for startups in a neighborhood are uncorrelated with those predicting high quantity. Together, our results underscore the importance of spatial heterogeneity in understanding the relationship between neighborhood conditions and the economic activity within them.

Jorge Guzman is the Gantcher Associate Professor of Business at Columbia University and Co-Director of the Lang Center for Entrepreneurship at Columbia Business School. Joining Columbia in 2018 after receiving an MBA and a PhD from MIT, Guzman introduced a new elective, Entrepreneurial Strategy, a class focused on examining the sources of competitive advantage for startups and the skills entrepreneurs need to build such advantage. Guzman’s research focuses on understanding entrepreneurial ecosystems, the psychological determinants of entrepreneurship, and the emergence and persistence of entrepreneurial competitive advantage. He is a Faculty Research Fellow at the National Bureau of Economic Research (NBER) in the Productivity, Innovation, and Entrepreneurship Program, and co-directs the NBER Entrepreneurship Boot Camp. 

Please click here to register.