The Startup Performance Disadvantage(s) in Europe: Evidence from Startups Migrating to the U.S.

Abstract

This paper uses novel data on U.S. migration among 11.000 European startups to identify Europe's main disadvantages in startup performance. I use positive sorting in migration as an identification strategy: because of positive sorting, the simple cross-sectional comparison gives an upper bound on the effect of the U.S. ecosystem compared to Europe. Results show that U.S. migrants are no more likely to achieve a successful exit, but if they do, they are larger, more innovative, and more mature than stayers. U.S. migrants achieve this maturity not through an immediate revenue boost, but by raising more capital and going through a deeper and longer valley of financial losses. Furthermore, a large part of the difference in innovation and scale can be explained by the U.S. funding advantage. Overall, these findings are consistent with the main difference between the ecosystems being more risk-tolerant and patient venture capital in the U.S. that enables the funding of riskier, more innovative "moonshot" projects.

Keywords: Entrepreneurship, Entrepreneurial Ecosystem, Relocation, Startup Outcomes

JEL Classification: F21, F22, L26, M13