Regional Entrepreneurial Opportunities in the Biotech Industry: Exploring the Transition from Award-Winning Nascent Entrepreneurs to Real Start-Ups

Abstract

Knowledge of factors that determine the transition from nascent entrepreneurship to real entrepreneurship is of major importance for policies aiming to stimulate start-ups effectively. Scholars have concentrated mainly on person-specific factors to explain transition probabilities, and environmental characteristics have been relatively neglected. Given that entrepreneurship is a strongly localized phenomenon, this paper argues that regional entrepreneurial opportunities are a driving force behind the transition from nascent entrepreneurship to new venture creation. Based on unique data from 103 nascent entrepreneurs in the German biotechnology industry, we empirically assess the importance of regional entrepreneurial opportunities for transition probabilities. Further, we introduce a new approach to measure nascent entrepreneurship by capturing details of individuals who participate actively in start-up competitions and have won at least one of these. Controlling for technology and individual characteristics, we find strong support for our hypotheses relating to the significant impact of general regional opportunities, specific regional opportunities and the entrepreneurial environment on the probability of transition from award-winning nascent entrepreneurs to real start-ups.

Notes

1. While the PSED, begun in 1998, primarily covers the US, the GEM project (Sternberg & Wennekers, 2005), begun in 1999, covered 54 countries worldwide in 2009. Both projects perform representative surveys of the adult population with the aim of measuring several dimensions of entrepreneurial activity. The results of additional expert interviews are provided in the annual GEM reports. More recently, the German Panel of Nascent Entrepreneurs (GEPANE) has been developed from the GEM data for Germany. First results are given in Brixy et al. (2010).

2. Localization and urbanization economies must not be considered to be mutually exclusive. A particular city with a high specialization in a specific industry can generate MAR economies in that field, while at the same time a well-balanced mixture of other industries can generate Jacobs economies (Beaudry & Schiffauerova, 2009).

3. Universities of Applied Science (Fachhochschulen) are a specific type of higher education institution in Germany. These technical colleges have a particular focus on teaching (predominantly in engineering) and application-oriented research. Unlike universities, they are usually not allowed to grant a doctorate (PhD degree). In the remainder of the paper, we follow Fritsch and Slavtchev (2007) and do not differentiate between universities and these technical colleges.

4. biotechnologie.de is an internet platform funded by the German Federal Ministry of Education and Research (BMBF), implemented to stimulate knowledge transfer in biotechnology. Besides general information on biotechnology, several public databases on biotechnology firms, public funded R&D and universities are offered. In Germany, it is the most comprehensive database on activities in biotechnology.

5. For example, Diochon et al. (2003, p. 70) consider a nascent entrepreneur to be making the transition to new venture creation when it generates a positive monthly cash flow that covers the expenses and the owner-manager's salary for more than 3 months.

6. It must be noted that not all nascent entrepreneurs that do not make the transition into a real new venture can be considered to be unsuccessful. Nascent entrepreneurs who give up their idea to start a business might have realized after a certain period of testing that their business idea was not viable in practice, and therefore abandoned their plans. However, the available data cannot show whether the abandonment is the result of such wisdom or a lack of creativity and commitment to problem-solving (Carter et al., 1996).

7. The identification follows a definition recently put forward by Schwartz and Hornych (2010), where business incubators are defined as specialized “if support elements and processes, as well as the selection criteria applied by the incubator management, focus on firms from solely one sector”. This paper draws on the data from Schwartz and Hornych (2010).

8. Following the definition of technology-intensive goods by Grupp et al. (2000), the average R&D intensity of an industry is used to measure high-tech (R&D intensity above 3.5% indicates “high-tech”). Since this definition does not include service firms, we follow the approach of Metzger et al. (2008) and added knowledge-based business-related services to the high-tech group. These include “telecommunications”, “computer and related activities” (including, e.g. software consultancy or data processing), “research and experimental development on natural sciences and engineering”, “architectural and engineering activities” and “technical testing and analysis”.