Abstract: We estimate the impact of the inflow of inventors on the formation and success of local venture-backed startups, strengthening causality with a shift-share instrument based on the historic spatial distribution of millions of inventor surnames in the 1940 U.S. Census. Arrival of inventors increases the number of venture-backed startups, but only in same technology fields of the newly-arrived inventors—and at the expense of other fields. Inventor arrivals boost the number of successful startups—including $1B+ “unicorn” exits—while reducing bankruptcies and “fire-sale” acquisitions. The improvement is also driven by a reallocation of venture capital away from investment in low-tech startups, especially unsuccessful ones.
Technical University of Munich
TUM School of Management