Archive for June, 2021

Frontier Knowledge & Start-Up Quality

In their 2015 research paper “Where is Silicon Valley?,” Jorge Guzman and Scott Stern set out a new method of ranking entrepreneurial ventures focusing on quality, not quantity as had prior reports, in part to provide policy-makers with information on how to promote entrepreneurship for economic and social progress.

They assemnbled five metrics, firm-name characteristics (named after the founder, long, short?), is it local or part of a regional trading cluster or high-tech industry cluster; is it a corporation, LLC, or incorporated in Delaware, and does it gain control of formal intellectual property rights within one year? They do not include location in order to step around the pitfall of assuming that businesses in a given location have a given level of quality. The quality metric is the probability of an initial public offering or an acquisition within 6 years of founding.

Their results are not surprising, but some of the magnitudes may be. Of course in California Silicon Valley stands out, with a quality ranking 20 times the average, and 90 times the lowest ranked cities. Quality is tied to the proximity of research universities and national labs. Finally, the high stakes are apparent in the difficulty of reaching the growth metric: Even those firms ranked in the top 1% have just a 5% chance hitting it.

Fast forward to 2021 and More than an Ivory Tower, the Impact of Research Institutions on the Quality and Quantity of Entrepreneurship, by Valentina Tartari and Scott Stern, who take on the possibly circular logic of the relationship of research institutes and start-up quality. (The former are often located in innovative environments and can themselves be sources of demand.) Three steps gets them there: assess annual business registration records using the analytics outlined above by zip code; link to presence or absence of research university or labs; and consider changes in Federal funding of those institutions, and whether it is directed to research or other activities.

They found that changes in Federal research commitments to universities are “uniquely linked” to positive changes in the quality-adjusted quantity of entrepreneurship, but that increases in non-research funding to universities as well as research funding to national laboratories has either neutral or no impact. In their conclusion they underscore that their research supports MIT’s Jonathan Gruber and Simon Johnson’s argument laid out in Jump-Starting America, for establishing a set of regional innovation hubs to support local “entrepreneurial ecosystems,” outside the established “superstar” hubs.

They suggest that although universities and national labs both conduct significant research, universities distinguish themselves both by also producing students, who often launch start-ups in the area—they suspect students with frontier knowledge play an important and “often underappreciated” role in disseminating knowledge generated at universities to activities in the private sector— and by promoting “policies and rules that encourage openness” and enhance “fluidity between research and industry.”

One of the reasons researchers so dislike non-competition employment constraints.
There’s much more, including interactive maps, from the team at Start-up Cartography Project.

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Damage by Demographic: An Acid Test

We all know the pandemic has done more damage to employment among certain demographic groups than others. Here are some spider graphs that show the percentage declines into the worst of it, and subsequent recoveries by demographic.

We used employment/population ratios, EPOPs, a straight-forward metric that reports the share of the population that is working, and so gets around all the questions about who has dropped out of the labor force and why that freight the unemployment rate.

Please note that the EPOP of the most engaged demographic, Hispanic men, is currently above that of all men and of Black and White men before the pandemic hit, despite an initial decline exceeded only by Hispanic women (not graphed).

White men, who experienced the smallest—‘though plenty big—contraction, and White women have made the most progress toward the ratios of February 2020. Hispanic and Black women have farthest to go, which is why you sometimes hear, based on the aggregates, that woman have suffered the most.

Here’s what that looks like:

By age, the EPOP fell the hardest among teens, and the recovery is lagging badly among those without college degrees who also experienced the largest setback:

We’ve made many promises to our essential workers. These details will serve as an acid test in assessing our progress.

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