Better the Devil You Know? Examining the Relationship between Spinout Team Assembly and Spinout Survival

This chapter investigates the relationship between the composition of initial spinout teams and spinout survival. We develop a theory suggesting that spinout founders hiring from their prior firm versus hiring from the external labor market to assemble spinout teams will have differential effects on spinout survival. Using confidential employee–employer linked data in the legal services industry provided by the United States Census Bureau, we find evidence that inclusion of spinout team members from the founder's prior firm is positively related to spinout survival, a relationship which increases with included members' prior earnings. In contrast, we find that inclusion of spinout team members from firms outside the founder's prior firm is positively associated with spinout failure, a relationship which becomes statistically insignificant when included team members' prior earnings are high. Taken together, our results point to the potential hazards associated with using external markets to assemble spinout teams, thereby establishing an important boundary condition for extant theory which has focused on the benefits associated with spinout team size, but has often neglected the labor market strategy through which such teams are assembled.