World Encyclopedia of Entrepreneurship
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World Encyclopedia of Entrepreneurship

Edited by Léo-Paul Dana

This comprehensive reference work, written by some of the most eminent academics in the field, contains entries on numerous aspects of entrepreneurship.
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Chapter 7: Employee Start-ups

Andreas Koch


Andreas Koch Generally, an employee start-up is defined as a new firm founded by an individual which has been employed by another private firm within the same industry prior to the foundation. With respect to the terminology, there has been some fuzziness in the past years which mainly results from the usage of the term ‘spin-off’.1 In some context, this term is used synonymously to what we call an ‘employee start-up’ (for example, by Erikson and Kuhn, 2006; Klepper, 2001). However, this can be misleading and provoke misunderstandings, as the term ‘spin-off’ is also used in management, financial and jurisprudential research. In these contexts, the term does not refer to (independent) start-ups, but mostly to divestments (corporate venturing) as a strategy of existing firms, which remain under the control of the divesting firm (also called ‘corporate spin-offs’, for example Cusatis et al., 1994; Parhankangas, 1999; Schnee et al., 1998). Some authors also have used the term ‘spin-out’ (Agarwal et al., 2004; Koster, 2006; for an overview and discussions of terminology see, for example, Parhankangas and Arenius, 2003; Koster, 2006; Tübke et al., 2004). Due to this ambiguous use of the term ‘spin-off’, more authors have recently begun to use the term ‘employee start-ups’ (for example Franco, 2005; Klepper, 2001; Shah et al., 2006), which I would strongly endorse in order to avoid further misunderstanding. To get back to the subject, an employee start-up combines the transfer of an individual with the transfer of some kind of industry-specific knowledge, experience...

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