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 high-level knowledge capital may be developed by high-ability entrepreneurs. With moderate investment 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. The predictions of the model are tested against a unique dataset drawing upon a representative sample of biotechnology startups in Japan and are found to be broadly supported in the data.