Diffusers of Entrepreneurship

Abstract

We examine an emerging phenomenon that talented employees leave successful entrepreneurial firms to join younger ones. Using a unique person-level dataset and a comprehensive sample of private firms from the U.S. Census Bureau, we find that such "entrepreneurial diffusers", by passing on entrepreneurial spirit, innovative culture, and institutional wisdom, enhance younger startups' innovation productivity and likelihood of successful exits. Further, these diffusers are motivated by the entrepreneurial spirit of risk-taking instead of monetary gains. Finally, we find that the departure of entrepreneurial diffusers contributes to the long-run IPO underperformance documented in the prior literature. Our paper offers new insights into a labor market channel of the cross-firm diffusion of entrepreneurship, which is critical to the sustainability of a vibrant entrepreneurial ecosystem.