The Social Value of the Marginal Startup

40 Pages Posted: 28 May 2014 Last revised: 3 Jun 2016

See all articles by John J. Horton

John J. Horton

New York University (NYU) - Department of Information, Operations, and Management Sciences

Date Written: May 26, 2016

Abstract

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

Suggested Citation

Horton, John J., The Social Value of the Marginal Startup (May 26, 2016). Available at SSRN: https://ssrn.com/abstract=2442439 or http://dx.doi.org/10.2139/ssrn.2442439

John J. Horton (Contact Author)

New York University (NYU) - Department of Information, Operations, and Management Sciences ( email )

44 West Fourth Street
New York, NY 10012
United States
6175952437 (Phone)

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