Startup incubators and the role of social capital

Abstract

A value proposition common among startup incubators and clusters is they provide firms with an environment that is more supportive than the open market, for example a high concentration of startups can be conducive to the building of social capital and tacit knowledge by tenants who, upon graduation from such sites, impact the regional economy. The positive impact of social capital on startup survival has been well described in the literature, but the impact of startup incubators and clusters remains inconclusive, with some researchers reporting that the survival rate of firms graduating from incubators or clusters is worse than that of startups that never participated in such sites. The lackluster performance of graduating firms is all the more striking given the opportunity for social capital diffusion in these high density sites, and the importance of social capital to startup success. Empirical tests using the Kauffman Firm Survey find that being in an environment in which social capital is readily accessible does not imply that the startup will engage it. We also find those startups that collaborate with other agents (universities, industries, and government organizations) outperform startups that do not. This result is moderated by industry, i.e. low-versus high-tech.