The Social Value of the Marginal Startup
40 Pages Posted: 28 May 2014 Last revised: 3 Jun 2016
Date Written: May 26, 2016
I present a model of technology entrepreneurship in which “engineers” choose to either found a startup as an entrepreneur, pursuing a single business idea — obtaining seed funding from VCs in exchange for equity — or join an established startup as an employee. The model predicts the number of startups formed and their success probability. It also predicts the wages of engineers, the share of equity retained by founders, the fraction of engineers pursuing entrepreneurship, and the profits of successful startups. The model characterizes the total output of the entrepreneurial system and the social value of the marginal entrepreneurial venture.
Keywords: venture capital, software engineers, Silicon Valley, labor markets, entrepreneurship
JEL Classification: J24, L26, G24, L86
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