Social Networks, Funding, and Regional Advantages in Technology Entrepreneurship

Abstract

With the increased penetration of digital technologies into entrepreneurship, the traditional need for proximity to specific locations or large amounts of funding for infrastructure development has diminished. Instead, digital entrepreneurs now pursue locations that provide more opportunities for funding (rounds) and greater social network support. In this paper, we empirically estimate the role of social networks and funding opportunities in a location on entrepreneurs’ decisions to create a startup in their existing or new location. We use economic indicators made publicly available by the US government; investment information from CrunchBase and PricewaterhouseCoopers (PwC); and demographics, professional histories, and network data from LinkedIn. Analysis of 1,418 entrepreneurs who successfully secured funding suggests that funding rounds per year play a significant and positive role in influencing startup creation in that location, and local social network density creates stickiness to that location, thus negatively influencing entrepreneurs' willingness to relocate. If entrepreneurs do relocate, we assume that they will create a startup immediately or delay it only by a short time. In the latter case, our results show that larger social network density (in a new location) affects startup creation decision. Additionally, we find empirical evidence that midcareer individuals (like millennials) are more likely than early-career or late-career-stage individuals to create a successful technology startup in the same or a new location. Also, entrepreneurs are less likely to relocate for an internet-based startup but are likely to move if they have larger social network density in the new location. This research enhances our understanding of the factors that influence decisions to launch a startup in a particular location and contributes to the limited literature on technology entrepreneurship in the field of information systems.

Keywords: digital entrepreneur, technology startup, social networks, millennial startups, regional advantages

JEL Classification: M13, D71, D80, O15, O30, O51, R23