How do Large Companies Affect Entrepreneurship : Evidence From Amazon’s HQ2 Search

I identify a specific channel (the prospect of getting funded or acquired by large firms) through which entrepreneurship is affected. By exploiting the variation across entrepreneurs' reactions to the two announcements of Amazon's new headquarters (HQ2) search, I find that after the announcement of the 20 finalist cities, new startups that are the potential funding or acquisition targets of Amazon are more likely to be established in one of those 20 cities. After the winning cities were selected, the newly created potential targets of Amazon are more likely to be founded only in the winning cities but not in the losing finalist cities. I also find that there exists a local competition for startups to get funded or acquired by Amazon, which is inconsistent with agglomeration explanation. I present evidence consistent with two possible underlying mechanisms: the synergy benefits from selling out to large firms and the difficulty in obtaining early-stage funding from non-corporate investors