TUILES: Tuesday Informal Lunchtime Seminars Fall 2015
Tuesday, December 1st
KMC 8-170
Lunch will be available at 12:15 pm. The seminar begins at 12:30 pm.
“A Theory of Technology Entrepreneurship”
John Horton
This paper presents a model of the software-focused, venture-backed entrepreneurship found in the San Francisco Bay Area, or “Silicon Valley.” Three kinds of markets matter in the model: (1) the financial market for venture capital, (2) the labor market for engineers, and (3) the collection of product markets successful technology companies serve. The key economic actors are elite “engineers” who decide between employment and entrepreneurship. Wages clear the labor market; retained equity clears the venture capital market. The model predicts the equilibrium startup probability of success, startup valuations, engineer wages, the returns to entrepreneurship and the split of engineers between entrepreneurship and employment. What affects the equilibrium are the direct cost of doing a startup, the cost of capital, the extent of product markets, the supply of engineers, and the innovation “environment.” In addition to presenting the theory, I also introduce a novel dataset on the career trajectories of paradigmatic elite engineers—Stanford Computer Science PhD graduates—to illustrate some of the stylized facts motivating the model.
Paper can be found here: http://john-joseph-horton.com/papers/sv.pdf