Science-Based Business: Knowledge Capital or Entrepreneurial Ability? Theory and Evidence from a Survey of Biotechnology Start-ups

We present a model of science-based entrepreneurship where ideas initially produced by researchers with scientific knowledge capital may be developed by high-ability entrepreneurs. With moderate verification costs, startups continuously managed by inventors-founders coexist in equilibrium with startups that experience entrepreneurial turnover. The model predicts that startups managed by non-founder entrepreneurs would on average outperform the startups managed by their founders, and that better functioning of the market for entrepreneurial talent should result in more entrepreneurial turnover in equilibrium which in its turn leads to more ideas being commercialized and higher rewards to successful startups. We probe the implications of the model using a unique dataset from the survey of a representative sample of biotechnology startups in Japan and we find them to be broadly supported in the data.