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

This paper uses novel data on the migration of European startups to the United States to understand 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 the European one. Results show that U.S. migrants receive much more venture capital (VC) funding, produce more innovation, and reach much bigger scale by exit than startups staying in Europe. More surprisingly, however, U.S. migrants do not increase revenue for many years after migration, incur higher losses for long time periods, and do not have a higher likelihood of successful exit than European stayers. Furthermore, a large part of the difference in innovation and scale can be explained by the U.S. funding advantage. These results are consistent with the view that technology, product, and exit markets hinder European startups little, if at all, but that Europe’s VC funding market is its major obstacle to startup performance