Abstract

We examine the influence of physical proximity on between-startup knowledge spillovers at one of the largest technology co-working hubs in the United States. Relying on the random assignment of office space to the hub’s 251 startups, we find that proximity positively influences knowledge spillovers as proxied by the likelihood of adopting an upstream web technology already used by a peer startup. This effect is largest for startups within close proximity of each other and quickly decays: startups more than 20 meters apart on the same floor are indistinguishable from startups on different floors. The main driver of the effect appears to be social interactions. While startups in close proximity are most likely to participate in social co-working space events together, knowledge spillovers are greatest between startups that socialize but are dissimilar. Ultimately, startups that are embedded in environments that have neither too much nor too little diversity perform better, but only if they socialize.