Go West Young Firm: the Value of Entrepreneurial Migration for Startups and Founders

Startup locational choice is a central question for entrepreneurial strategy. To realize the growth potential of their venture, social embeddedness provides founders with a ‘home field advantage,’ while agglomeration economies in regions such as Silicon Valley offer unique access to resources and new networks. For firms born in environments lacking a strong entrepreneurial ecosystem, founders must trade off these two effects in choosing between staying at home versus moving to a richer cluster. This paper sheds light on this choice by assessing the determinants and consequences of migration for a systematic sample of growth-oriented startups from 1988 to 2014. Specifically, I draw a sample of firms that (a) adopt Delaware jurisdiction (a corporate governance choice that is associated with a growth orientation), and (b) for which I can track whether the firm moves from their original location to another state within the first few years of founding. Within this sample, 4% of firms migrate across state lines in their first two years. I then use a machine learning approach that allows me to estimate the consequences of migration for migrants compared to non-migrant firms born in the same time and place and that look strikingly similar at founding. Relative to a baseline equity growth rate of 1.4% (where equity growth is measured as the realization of an IPO or significant acquisition event), migrants to Silicon Valley experience a 5.8 percentage point increase in the likelihood of an growth outcome (i.e., from 1.4% to 7.2%). Migration is also associated with an increase in patenting, product commercialization, venture financing and sales, and smaller but still positive effects are also found for migrant firms to other destinations. In fact, these firm performance benefits raise the question as to why entrepreneurial migration is not more common. A potential resolution to this puzzle lies in the recognition that the interests of founders may be distinct from simply maximizing the growth potential of those firms that they found. Migrating the firm (usually) requires migration by the founder, which comes with its own costs and benefits. Conditional on an initial estimate of the underlying growth potential of the firm, migration is more common among younger founders versus older founders who may have more location-specific commitments. This finding raises a new agenda for entrepreneurial strategy: since founders not only choose but also have to implement the strategy, even in the absence of a traditional principal-agent relationship, are there differences between founder incentives and incentives to realize the growth potential of the firm?