eesley stanford venture fund

S T A N F O R D U N I V E R S I T Y • Management Science & Engineering

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Technology Entrepreneurship Research at Stanford

Chuck EesleyManagement Science & EngineeringStanford Technology Ventures ProgramMarch 9th, [email protected]


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Chuck Eesley

Lobby 10 Consulting

Sun Dance Genetics


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(STV

P) Institutional Environments and Entrepreneurship

Drivers of entrepreneurial entry and performance (different contexts)

Developed economy Entrepreneurs from Technology-Based Universities - with David Hsu

(Wharton), Ed Roberts (MIT) Bringing Entrepreneurial Ideas to Life Boom and Bust Founders Cutting Your Teeth - Prior entrepreneurial experience

Developing economy The Right Stuff

– Role of institutional environment in selection of high human capital entrepreneurs

Entrepreneurial Performance in a Developing Country: Evidence from China

What Drives an Innovation Strategy?– Role of Institutional Env./funding of S&T in search for ideas

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(STV

P) Entrepreneurship Research

B-schools, economics and sociology faculty have produced a large literature on industry dynamics, strategy and firm performance for large firms.

Management of Innovation – largely shows difficulty large firms have with surviving waves of innovation (creative destruction)

(Much less on how and when entrepreneurial firms take advantage of this)

Studies of Tech. Entrepreneurship began in 1960s (Roberts, Cooper)

Data, Quality Research scarce (self-employment) E-ship taught via war stories

Systematic study of Tech. Commercialization and Entrepreneurship Lacking Almost nothing is known outside of the US and EU

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(STV

P) Factors that Drive Founding Do Not Drive Performance

Founding Performance

Parental entrepreneurship Managerial Experience, prior founding

Wealth Lower wealth

Low opportunity costs High opportunity costs

Male Either gender

VC-backed firm work experience Entrep. prominent organization

Broker network Cohesive network

Need for achievement Self-efficacy

Education Education

Low uncertainty avoidance, high individualism Product, marketing orientation

Generalists Growth market

Non-U.S. citizen Either

In 30s-40s Any age

Planning, VC5


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Data

Unique data on firm origins, early composition and multiple stages of performance measures

Alumni: 105,000 surveyed; 42,930 records in 2001

– Date of birth, country of citizenship, gender, major at MIT, highest attained degree

– 7,798 indicated founding at least one company

Survey of self-identified MIT alumni entrepreneurs in 2003

– 2,067 respondents (r.r. 27%)

– Hsu, Roberts, Eesley 2007

Alliances & Acq. - SDC Platinum Patents – USPTOVC - VentureXpert


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Table 1. Estimated Employment and Sales Data for All Active MIT Alumni Companies°

Jobs

Percent of Companie

sMedian

Employees

Median Sales

($Millions)

Estimated Total

Employees

Estimated Total Sales ($Millions)

More than 10,000 0.3% 15,000 1,523 1,339,361 1,389,0751,000-10,000 1.8% 1,927 308 1,043,932 235,532

Less than 1,000

97.9% 39 <1 900,001 226,671

Total 100.0% 155 <1 3,283,294 1,851,278

°Underlying data from 2003 MIT survey of all living alumni, updated to 2006; ~25,800 active companies.ALL DATA FROM: Entrepreneurial Impact: The Role of MIT,Edward Roberts & Charles Eesley, MIT Sloan, February 2009


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1950s 1960s 1970s 1980s 1990s0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

All alumni Women

Non-Domestic Citizens

Estimated Number of “First-Time” Firms Founded Each Decade By MIT Alumni


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0-9 10-19 20-29 30-39 40-49 50-590

500

1000

1500

2000

2500

Cumulative Firms Founded (Bachelors Degree)

1950s

1960s

1970s

1980s

1990s

Years After Graduation

Num

ber

of F

irm

s

More entrepreneurs emerge from each successive MIT class, and they start their companies sooner and at younger ages.


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Table 4. One-Time and Repeat MIT Founders by Decade of Graduation (percent)

Decade

1930s 1940s1950

s1960

s1970

s 1980s 1990s 2000s

Total # Firms

Founded

1 67 61 56 54 48 57 61 59

2 0 11 21 20 23 22 23 28

3 0 9 10 11 16 11 9 9

4 11 8 7 7 6 5 3 3

5+ 22 11 7 9 7 5 4 0

% Repeat 33 39 44 46 52 43 39 41

Over time, the number of multiple companies founded per MIT alumnus has been increasing, with dramatically increased economic impact per entrepreneur.


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The MIT “magnet”: <10% of MIT students grew up in Massachusetts; 31% of alumni firms are in Massachusetts


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MIT Entrepreneurial Ecosystem has grown in its components and impact over the years

Underlying culture, history, role models, and policies

Alumni initiatives: MIT Enterprise Forum

Re-oriented Technology Licensing Office

MIT Entrepreneurship Center: Classes: 1 to 30 in 15 years; 3 new ones in energy ventures in past 2 years Clubs, including MIT $100K Business Plan Competition Conferences, and many forms of internal and external networking

Recent MIT institutional broadening and growth Venture Mentoring Service MIT Deshpande Center Entrepreneurship & Innovation MBA Track


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Table 14. Entrepreneurship Center Factors Important to Venture Founding (from limited sample only)

Proportion Rating University Factors as Important in Venture Founding* (%)

Graduation Decade1950s

(N=73)1960s

(N=111)1970s

(N=147)1980s

(N=144)1990s

(N=145)MIT Business Plan Competition 0 1 0 3 30MIT Entrepreneurship Center 3 1 2 1 12MIT’s Entrepreneurial Network 26 25 32 40 50

*Respondents could check all relevant categories.


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Table 8. Role of MIT’s Positive Feedback Loop in Venture Founding (from limited sample only)

Proportion of Founders Choosing MIT for the Entrepreneurial Environment (%)

Graduation Decade1950s 1960s 1970s 1980s 1990s

(N=207) (N=313) (N=373

) (N=315) (N=214)Chose MIT for its Entrepreneurial Reputation

17 12 19 26 42


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For more information, see complete report:Entrepreneurial Impact: The Role of MIT

http://entrepreneurship.mit.edu/Downloads/Entrepreneurial_Impact_The_Role_of_MIT.pdf




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Context

Alumni survey Tsinghua University~26,700 mailed (correct addresses)3,000 surveys11% r.r.Growing tradition: Stanford GSB, Chicago, HBSDisadvantages: Biased towards tech., other response bias?

Advantages: Defined‘at risk’ set, first abroad, detailed work history and founding data, less biased by govt. concerns

Other surveys: business owners, self-employed and entrepreneurs merged together – Treiman and Walder, “Life Histories and Social Change in Contemporary China”

Self-employment (Chinese Health and Nutrition Survey, NBS HH Survey)

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(STV

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79 pages of notes from interviews with 42 individuals

– 26 Tsinghua alumni entrepreneurs– 2 Tsinghua staff (TLO, Science Park)– 5 Chinese venture capitalists (VCs)– 2 Government officials– 3 Other Chinese entrepreneurs (non-Tsinghua)– 2 MIT Alumni (non-entrepreneurs)– 2 Tsinghua alumni (non-entrepreneurs).

• Interviews were in Beijing, Shanghai and Xi’an

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Context - interviews


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1982

1984

1986

1987

1988

1989

1990

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

0

5

10

15

20

25

30

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First Foundings by Year

First Founding Year

Nu

mb

er o

f S

tart

-up

s

19892004 China 29% growth vs. US 1% (State Statistics Bureau)

Tsinghua Data


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Founding Rates

MIT Tsinghua

Dept. Freq. Percent

freq. founder

% becoming founders

Freq. Percent

freq. founders

% founders

Engineering

21714 51.28 3483 16.04 1771 69.72 456 25.75

Sciences 9086 21.46 1984 21.84 406 15.98 79 19.46Management 6365 15.03 1634 25.67 100 3.94 31 31.00

Social Sciences 2838 6.70 265 9.34 163 6.42 27 16.56

Architecture 2339 5.52 487 20.82 100 3.94 27 27.00


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(STV

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Idea sources MIT Data Tsinghua data percentage percentage

In school-doing outside-funded research 2.40 1.66 In school- graduate thesis 4.64 3.96 In school- in class 1.98 5.88 In school-informal discussion w/ students 3.41 11.00 In school-other research 2.28 1.92 In school-professional literature 1.73 4.48

In school- visiting scientists, engineers 1.77 4.86

In school-working w/ outside company 3.20 4.86 Other sources-discussions in social/professional conferences

21.54 17.65

Other sources-research conference 2.66 4.48

Other sources-working in the industry 41.44 24.81 Other sources- working in the military (government experience)

4.01 2.94

Doing outside-funded research 2.07 0.77 Total 100 100 Number of observations 1284 110


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Industry Breakdown


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(STV

P)MIT and Tsinghua alumni firms

Purchasing Power Parity converted to constant 2005 U.S. dollars


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(STV

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28MIT firms significantly older; GDP/capita is 43x higher in U.S.


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(STV

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29

0% or less

10% 20% 30% 40% 50% 60% 70% 80% 90% 100%0

5

10

15

20

25

30

Distribution of firms by profit as a ratio of revenues

20062005

Profit as a percentage of revenues

Perc

enta

ge o

f firm

s


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(STV

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Aero/A

stro

Archite

cture

Biomed

Chemica

ls

Consumer

Products

Consult

Electr

onics

Energ

y

Finan

ce

Law, M

isc.

Machinery

Publishing

Software

Telec

om Oth

Other Mfg.

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

Percent of Revenue from Out-of-State (MIT)

Percent of Revenue from Exports (MIT)

Percent of Revenue from Out of Province (Tsinghua)

Percent of Revenue from Exports (Tsinghua)

Prop

ortio

n


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China is more state-led than a market economy still. The government controls many resources. For firms the quickest way to make a lot of money is through the government. The government has incentives for firms to put up good numbers (it’s good for the politicians’ careers).

Interview Quotes

In the 1990s … government was giving them less support. Many universities created “university –run” enterprises and were basically selling off the periphery of campus. Even high schools had school—run enterprises that were considered acceptable. There is a Tsinghua name to many of them. - GC – 2nd generation investor


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Interviews

Historically, investors in China see fewer experienced, serial entrepreneurs

“Forced to rely more on work experience outside of an entrepreneurial context to judge the quality of entrepreneurs – GY – VC investor

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Tsinghua alumni, entrepreneurship among alumni has a meta-effect where some learn the process and mentor each other so in the future there will be more and more entrepreneurs from Tsinghua as has already happened with MIT alumni. – RC – Wave Communications (his 6th start-up firm)


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Analysis:

E[yi | x] = α + ρ’zi + ’xi + ’yi + ’pre xi + ’Xi + pre, mid, post + η + φ + i

Dep. Variables: yi represents our measures of firm

performance

xi is government ties (father in government, privatized, coastal province)

yi is government programs (specifically science parks)

zi is separate measures for exposure to entrepreneurship, prior founding experience, or innovation

Xi vector of control variables - Everjob_govt, Comm. Party, Govt. customer, Privatized, Entrep. parents, Entrep. index, rural, EECS, Overseas, SEZ, software, electronics, wealthy family, Master’s, PhD, number of cofounders

η and φ represent year and industry sector dummies >0


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Results: firm performance

N=230; (R2 0.627) ***, **, and * indicate statistical significance at the 1%, 5%, and 10% levels, respectively. Everjob_govt, Comm. Party, Govt. customer, Privatized, Entrep. parents, Entrep. index, rural, EECS, Overseas, SEZ, software, electronics, wealthy family, Master’s, PhD, number of cofounders, industry and year fixed effects were included as controls but coefficients are not shown to save space.

VARIABLES Log(rev) Log(rev) Log(rev)Log(rev

) Log(rev)Coastal 1989-2000 2.637**

(1.049)Privatize 1989-2000 2.406**

(1.058)Gov. dad 1989-2002 0.868**

(0.403)Park x 2000-02 1.391*

(0.712)Park x 2004-07 -1.545**

(0.646)E-index x 2004-07 0.214**

(0.100) Serial x 2003-07 1.409**

(0.689) Innovation x 03-07 1.939**

-0.912Log(firm age) 0.360 0.448** 0.417** 0.450** 0.007 0.085

(0.243) (0.190) (0.183) (0.180) (0.458) -0.431


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(STV

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Endorsed by Pres. HennessyPlanned for this yearEnable a comparison with MIT, TsinghuaAggregate Economic Impact on Region and WorldNew questions about entrepreneurial process, success

factors, impact of university programs

IIT India dataMore broadly always looking for help:

– Mentoring, guest teaching– Access to Data (Portfolio companies)– Funding– Ideas / Advice

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Thank you!

Chuck EesleyStanford University

Management Science & Engineering (MS&E)[email protected]

mailto:[email protected]

eesley stanford venture fund

Business

role of mit

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