1. Founding team, firm, and contextual characteristics associated with knowledge- intensive young business ventures Yannis Caloghirou*, Aimilia Protogerou*, Aggelos Tsakanikas* and Nicholas Vonortas** *LIEE/NTUA ** George Washington University T2S 2013 Conference, 8-9 November 2013, Bergamo, Italy Laboratory of Industrial & Energy Economics, National Technical University of Athens

2. What is this session about? Studying and measuring E’ ship in Europe Three surveys: – GEM (1999- ), early-stage entrepreneurship, general population survey, 68 countries – The KfW/ZEW Start-up Panel, Germany, CATI, 6000 newly founded firma (2008-) – The AEGIS SURVEY (2011), Knowledge-Intensive, newly established firms (4000 firms in 10 European countries). Two studies on academic entrepreneurship – Spin offs in Sweden and the UK (different institutional settings) – The external impact of University Research in the context of a complex metropolitan region : The case of London’s Colleges of Higher Education T2S 2013 CONFERENCE, Bergamo, Italy Y. Caloghirou et al, LIEE/NTUA, The AEGIS Survey 2

3. What kind of animal do we study? Entrepreneurship is a very heterogeneous concept and entity. Focus on a particular kind of ‘business animal’ i.e. Knowledge-Intensive Entrepreneurship (KIE). Approach: You can study Entrepreneurship from different perspectives and at different levels (individual, organisational,..). The unit of analysis is the firm, the newly established firms in the first decade of the 21 st century and survived the three years survival test. T2S 2013 CONFERENCE, Bergamo, Italy 3 Y. Caloghirou et al, LIEE/NTUA, The AEGIS Survey

4. A definition of KIE Knowledge intensive entrepreneurship (Malerba and McKelvey, 2010) is associated with four basic characteristics: 1.it concerns newly established ventures; 2.new ventures that are innovative (different types and degrees of innovative performance); 3.new ventures (with considerable knowledge assets) engaging in activities that are knowledge intensive; 4.new ventures that are not to be found solely in high-tech industries (they may well be active in industries with medium-tech or low-tech characteristics). T2S 2013 CONFERENCE, Bergamo, Italy 4 Y. Caloghirou et al, LIEE/NTUA, The AEGIS Survey

5. The particular aim of this paper The aim: Examine the characteristics of – Founders (personal)/ founding teams, – Firm (organisational) – Context (national system of innovation, sector, variety of capitalism) associated with newly established business ventures that incorporate different levels of knowledge intensity and innovative performance (knowvation)in their activity. T2S 2013 CONFERENCE, Bergamo, Italy 5 Y. Caloghirou et al, LIEE/NTUA, The AEGIS Survey

6. A three-step analysis 1.Build a firm taxonomy based on the characteristics of KIE (i.e. translation of theoretical concepts into measured empirical variables), 2.Explore how new ventures of different knowledge intensity (and innovative performance) are distributed across different contexts: institutional (National Systems of Innovation), and industrial/ sectoral (HT, LT, KIBS), Socioeconomic configuration (VoC). 3.Examine in which ways (in terms of founding motives, dynamic capabilities, strategic considerations, and performance) and to what extent, KI new ventures differ from “less KI” ones. T2S 2013 CONFERENCE, Bergamo, Italy 6 Y. Caloghirou et al, LIEE/NTUA, The AEGIS Survey

7. Why a taxonomy of newly established firms in terms of KIE might be useful Dealing with heterogeneity is a challenge for entrepreneurship research and the diversity among young firms cannot be easily reduced into a general model. New firms are heterogeneous in terms of both their innovative performance and knowledge assets (“knowvation”). Taxonomies of new entrepreneurial ventures that display different degrees of “knowvation” might provide: – an empirically based framework to test the theoretical concept of KIE (operationalisation of the KIE concept), – a specific classification scheme that labels different items into separate groups with common KIE characteristics. – useful policy guidelines. T2S 2013 CONFERENCE, Bergamo, Italy 7 Y. Caloghirou et al, LIEE/NTUA, The AEGIS Survey

8. Two main Objectives of the AEGIS Survey (conducted in 2011) Make the concept of KIE empirically operational (main instrument of the AEGIS project) The AEGIS survey: A pilot for developing a new tool- with high research potential and strong policy impact- for monitoring and studying KIE in different contexts (sectoral, country and socioeconomic) in Europe through a regular Community Entrepreneurship Survey. T2S 2013 CONFERENCE, Bergamo, Italy 8 Y. Caloghirou et al, LIEE/NTUA, The AEGIS Survey

9. The AEGIS survey design Newly established firms – Established from 2001 to 2007 with a primary activity in pre-selected sectors Actually new firms but not new legal entities resulting from any type of legal transformation of already existing firms No subsidiaries of existing companies, or mergers acquisitions and joint ventures T2S 2013 CONFERENCE, Bergamo, Italy 9 Y. Caloghirou et al, LIEE/NTUA, The AEGIS Survey

10. The AEGIS survey arithmetic (numbers) 10 countries (Sweden, Denmark, UK, Germany, France, Italy, Greece, Portugal, Czech Republic, Croatia), conducted in the first half of 2011 Group of Sectors: a) HMT manufacturing sectors, b) LMT manufacturing, c) KIBS 4,004 completed questionnaires 23,405 telephone contacts 12,824 eligible firms 31.2 % response rate T2S 2013 CONFERENCE, Bergamo, Italy 10 Y. Caloghirou et al, LIEE/NTUA, The AEGIS Survey

11. Sample distribution by Country and sector Country Completed interviews High techLow techKIBS Croatia200 5010050 Czech Republic200 506783 Denmark330 4657227 France570 95169306 Germany557 91136330 Greece331 45161125 Italy580 120253207 Portugal331 51150130 Sweden334 4399192 UK571 74165332 Total4,004 6651,3571,982 T2S 2013 CONFERENCE, Bergamo, Italy 11 Y. Caloghirou et al, LIEE/NTUA, The AEGIS Survey

12. Selected findings Size of the new venture. The founding team (size, age, cognitive foundations, background..) The profile of the new venture: What kind of animal KIE is? How it operates? T2S 2013 CONFERENCE, Bergamo, Italy 12 Y. Caloghirou et al, LIEE/NTUA, The AEGIS Survey

13. Firm size  the majority of firms (more than 6 out of 10) are micro enterprises Almost 9 out of 10 are small firms. Practically non existing large firms. 4 out of 10 with part- time employees. Only 116 firms have exclusively part-time employees. T2S 2013 CONFERENCE, Bergamo, Italy 13 Y. Caloghirou et al, LIEE/NTUA, The AEGIS Survey

14. Most important drivers of firm formation Work experience, Market and engineering knowledge, Networks built during previous career, …and, New firm formation funding: Own and family sources T2S 2013 CONFERENCE, Bergamo, Italy 14 Y. Caloghirou et al, LIEE/NTUA, The AEGIS Survey

15. Founding team size: small average size (2 persons) and male dominated (8 out of 10) T2S 2013 CONFERENCE, Bergamo, Italy 15 Y. Caloghirou et al, LIEE/NTUA, The AEGIS Survey

16. What is the Founders background? non university degree (43%) or post-graduate degree holders incl. PhDs (35%) previous work experience in the same industry 12 years professional experience technical and engineering knowledge 15% have previous entrepreneurial experience but relative limited number of PhD founders but relative limited number of PhD founders: 1 out of 100 have at least one PhD founder T2S 2013 CONFERENCE, Bergamo, Italy 16 Y. Caloghirou et al, LIEE/NTUA, The AEGIS Survey

17. The educational level of Human Capital in new ventures High – 2 out of 3 of all new companies have employees holding a University degree. – On average, these firms have 6 employees holding a University degree. – Half of all the new companies employ people with a postgraduate degree (PhDs included). Higher Educational Level in Knowledge Intensive Business Services (KIBs) compared to high and low-tech manufacturing, T2S 2013 CONFERENCE, Bergamo, Italy 17 Y. Caloghirou et al, LIEE/NTUA, The AEGIS Survey

18. Sources of funding for setting up a company  on average 80% of funding came from the founders’ own resources T2S 2013 CONFERENCE, Bergamo, Italy 18 Y. Caloghirou et al, LIEE/NTUA, The AEGIS Survey

19. How innovative they are? 2 out of 3 firms have introduced or improved new goods/services into the market during the last three years. The majority of firms report that they have also introduced at least one of either process (production and delivery methods) or organizational innovation. 1/8 (14,2%) of firms present new to the world product innovation T2S 2013 CONFERENCE, Bergamo, Italy 19 Y. Caloghirou et al, LIEE/NTUA, The AEGIS Survey

20. Market and Business Environment On average, 86% of their sales comes from the domestic market (HT: 24%, KIBS & LMT 13%) The most important obstacles of their growth are market risk/uncertainty and funding Continuously changing taxation regulations and high tax rates are also important barriers for the firm operation and growth, but differences exist across countries The most important factor for achieving competitive advantage is related to addressing market and customer needs. T2S 2013 CONFERENCE, Bergamo, Italy 20 Y. Caloghirou et al, LIEE/NTUA, The AEGIS Survey

21. The empirical taxonomy: Clustering variables Groups of variables used from the AEGIS survey to determine innovative ventures: Introduction of new or developed goods/services Degree of novelty-innovation (new to the firm, market, world) Introduction of process and organizational innovation Intellectual property protection methods (patents, trademarks, copyrights, confidentiality agreements, secrecy, lead and advantages on competitors, complexity of design) Groups of Variables used from the AEGIS survey to determine the firm’s knowledge assets: Knowledge-seeking activities (industry, science, in-house R&D, open sources, participation in research collaborative activities) Average educational attainment of the founding team Percentage of funding coming from venture capital (proxy). Human capital & innovation input (% of full time employees with Graduate and PhD degrees, employee training, R&D intensity) T2S 2013 CONFERENCE, Bergamo, Italy 21 Y. Caloghirou et al, LIEE/NTUA, The AEGIS Survey

22. Cluster analysis results (1/2) KIE variablesLess KIEAll-around KIE World- class KIE Total sample Knowledge-intensive activities Knowledge/External-Industry (0/1)42,8%64,2%27,9%45,4% Knowledge/External-Science (0/1)5,9%18,6%6,6%8,8% Knowledge/In-house R&D (0/1)41,5%73,6%70,6%53,1% Knowledge/External-Open sources (0/1)17,7%42,1%24,0%24,2% Knowledge/Participation in collaborative (0/1)6,9%24,1%11,7%11,5% “Initial conditions” F-team avrg edu attainment (0/1)24,9%19,9%56,7%28,5% % funding from venture capital (0/1)1,2%1,7%6,8%2,1% Human capital & Innovation “input” %ft employees:Graduate degree (0/1)12,4%5,8%24,6%12,7% %ft employees:PhD degree (0/1)6,1%11,6%24,6%10,1% Employee training (0/1)36,0%60,0%46,4%43,0% RD intensity (0/1)16,7%47,0%54,8%29,3% Observations20127274873226 T2S 2013 CONFERENCE, Bergamo, Italy 22 Y. Caloghirou et al, LIEE/NTUA, The AEGIS Survey

23. Cluster analysis results (2/2) KIE variablesLess KIE All- around KIE World- class KIE Total sample Innovation performance Introduced new goods/services last 3 years44,0%100,0% 65,1% New-to-firm (0/1)20,6%28,3%16,8%21,8% New-to-market (0/1)17,8%47,6%43,3%28,4% New-to-world (0/1)5,7%24,1%39,8%15,0% Introduced process innov last 3 years35,0%81,7%29,2%44,6% Introduced logistics innov last 3 years27,5%79,5%11,3%36,8% Introduced innov in support activities last 3 years40,6%93,5%33,1%51,4% Improved knowl mngnt systems last 3 years41,4%86,9%41,7%51,7% Changes in mngnt structure last 3 years25,8%58,3%22,8%32,7% IPR last 3 years:patents2,6%21,3%30,4%11,0% IPR last 3 years:trademarks11,7%51,9%53,6%27,1% IPR last 3 years:copyrights7,2%31,1%40,5%17,6% IPR last 3 years:confidentiality13,4%64,2%93,2%36,9% IPR last 3 years:secrecy5,6%51,0%79,9%27,0% IPR last 3 years:lead_time13,8%75,7%69,2%36,1% IPR last 3 years:complexity8,9%61,2%70,4%29,9% Observations20127274873226 T2S 2013 CONFERENCE, Bergamo, Italy 23 Y. Caloghirou et al, LIEE/NTUA, The AEGIS Survey

24. The empirical taxonomy: Classification of KIE ventures KIE variables Type All-around KIE (22.6% of the sample) World-class KIE (15.1% of the sample) Less KIE (62.3% of the sample) External knowledge seeking (industry, science, open sources, participation in research collaborative activities) √ Industry (clients, suppliers, competitors) In-house R&D√√ Founding team edu attainment√ Capital from VC√ Human capital & Innovation inputEmployee training - Graduate degree, Ph.D. - R&D intensity Product innovation - New-to-firm - New-to-market New-to-world Process & org innovation√Close to average Intellectual property protection methods (patents, trademarks, copyrights, etc) √ T2S 2013 CONFERENCE, Bergamo, Italy 24 Y. Caloghirou et al, LIEE/NTUA, The AEGIS Survey

25. Distribution of venture types across different types of context (1/2) KIE type Less KIE All-around KIE World-class KIETotalObservations National Innovation Systems (EIS 2009) CR (modest innovators)47.4%42.9%9.7%100.0%175 CZ/GR/IT/PT (moderate innovators)58.3%33.4%8.3%100.0%1,230 FR/UK (followers)72.9%11.6%15.4%100.0%868 DK/DE/SE (leaders)60.8%14.7%24.6%100.0%953 Total62.4%22.5%15.1%100.0%3,226 Pearson chi2(6) = 291.5104 Pr = 0.000 Technology class Low-tech66.5%25.5%8.0%100.0%1,066 Medium-low (LT=ref)67.0%28.8%4.2%100.0%212 Medium-high53.8%30.2%16.0%100.0%262 High-tech45.6%23.3%31.1%100.0%103 KIHTS48.4%24.3%27.3%100.0%506 KI Market services67.6%15.6%16.8%100.0%1,077 Total62.4%22.5%15.1%100.0%3,226 Pearson chi2(10) = 191.891 Pr = 0.000 T2S 2013 CONFERENCE, Bergamo, Italy 25 Y. Caloghirou et al, LIEE/NTUA, The AEGIS Survey

26. Distribution of venture types across different types of context (2/2) World-class KIE ventures, are mostly concentrated in leading economies (leading in the sense of having developed an advanced innovation system). All-around innovators are basically found in countries with modest and moderate innovation systems. KIE is only partly industry specific. – Knowledge-intensive firms can also be found in KIBS and even low-tech manufacturing sectors. – Less-knowledge intensive firms (at least in terms of the proposed taxonomy) can also be found in high-technology sectors T2S 2013 CONFERENCE, Bergamo, Italy 26 Y. Caloghirou et al, LIEE/NTUA, The AEGIS Survey

27. Comparative analysis of venture types Less KIE All-around KIE World-class KIE TotalObservations Factors important for firm formation Technical knowledge3.3053.7583.6033.4523224(***) Market knowledge and social networks3.8554.0713.8843.9083223(***) Identification of opportunities2.7383.3603.0582.9263224(***) Internal factors Capability/Product related3.5454.1053.9243.7283226(***) Seize Opport:Market adaptation3.6944.0483.9143.8073226(***) Seize Opport:Technical adaptation2.1733.0223.0472.4963226(***) Networking capability2.8323.4752.9662.9973226(***) Participation in collaborations1.6502.3172.2061.8843226(***) RD intensity:% sales last 3 years7.55319.1624.4212.723226(***) Strategy: Low cost19.28%12.24%7.19% Differentiation58.00%55.43%60.57% Focus22.71%32.32%32.24% Total100% 3226(***) %Sales in International market11.5518.0625.0615.053226(***) Performance Avrg. Profit (2007-9)2.3802.6772.5382.4702859(***) Avrg. Growth Sales (quartile)5.0425.8536.0885.3852979(***) T2S 2013 CONFERENCE, Bergamo, Italy 27 Y. Caloghirou et al, LIEE/NTUA, The AEGIS Survey

28. Comparative analysis of the more KIE groups against the ‘mixed-bag’ of less KIE Firms in the in the two more KIE groups (i.e. WcKIE, AaKIE) compared to firms of the third “mixed bag” “less KIE” group – have built more strongly their R&D and product related capabilities, their dynamic capabilities (i.e. their ability to exploit market and technical opportunities), they engage more strongly in networking and participate more heavily in various types of collaborative arrangements, and of course, spend significantly more on R&D, – tend to pursue differentiation and focus strategies more than “less KIE”, who show more emphasis on low cost, – are heavily geared towards international markets, presumably based on their more innovative profile, – seem to enjoy higher performance (average profits and average growth rates in sales), T2S 2013 CONFERENCE, Bergamo, Italy 28 Y. Caloghirou et al, LIEE/NTUA, The AEGIS Survey

29. Concluding remarks Our proposed taxonomy of newly-established firms derived three groups of firms, two of which can be interpreted as distinct varieties of KIE ventures. – The first of these, termed “all-around KIE”, shows a more balanced emphasis on different dimensions of innovation and relies both on internal and external knowledge-activities to explore and exploit new business opportunities. – The second, labelled “world-class KIE”, emphasizes new-to- world innovation drawing from in-house knowledge which in turn draws from high quality human capital (both in terms of founders and workforce). – The third, a residual “mixed bag” or “less KIE” group clearly lags behind in all dimensions of knowledge-intensive activities and innovation. T2S 2013 CONFERENCE, Bergamo, Italy 29 Y. Caloghirou et al, LIEE/NTUA, The AEGIS Survey

30. Concluding remarks This taxonomy of young firms taking into account their knowledge intensity and innovation performance may provide an empirically based framework that helps to further build a theory of knowledge-intensive entrepreneurship and to guide related policies. T2S 2013 CONFERENCE, Bergamo, Italy 30 Y. Caloghirou et al, LIEE/NTUA, The AEGIS Survey

31. Concluding remarks Our results confirm that taxonomies of young firms based on their knowledge intensity and innovative performance can be extended to map their differences in variables such as factors affecting firm formation, organizational factors (dynamic capabilities), pursued strategies and performance. These variables are important not only because they help us test the validity of our proposed taxonomy but also to understand the different aspects of young firms with varying degrees of KIE. T2S 2013 CONFERENCE, Bergamo, Italy 31 Y. Caloghirou et al, LIEE/NTUA, The AEGIS Survey

32. Thank you very much for your attention! T2S 2013 CONFERENCE, Bergamo, Italy 32 Y. Caloghirou et al, LIEE/NTUA, The AEGIS Survey