Saul Estrin is a Professor of Managerial Economics and Strategy in the Department of Management at LSE. His areas of research include labour economics, economic development and entrepreneurship. He was formerly Adecco Professor of Business and Society at London Business School where he was also Deputy Dean (Faculty and Research) for six years and the Director of the Centre for New and Emerging Markets, which analyses private sector development in emerging markets. Saul has published more than one hundred scholarly articles and books. His books include Privatisation in Central and Eastern Europe; Foreign Direct Investment into Transition Economies; and Investment Strategies in Emerging Markets. He has also published numerous papers in scholarly journals including Quarterly Journal of Economics, Review of Economics and Statistics, European Economic Review, Journal of Public Economics, Journal of Industrial Economics and Journal of Comparative Economics.
Current areas of research include:
- Entrepreneurship and employment creation: We know that the bulk of new jobs are created by new firms. What is much less clear is what leads entrepreneurial firms, once established and having survived the critical first year or so of operations, to grow. The literature has tended to concentrate on the personal characteristics of the entrepreneurs, which is of limited value in policy development. This project will bring together information about entrepreneurs from GEM, notably concerning their education and skills, with data about national level entrepreneurial opportunity creation, for example with respect to knowledge creation and diffusion. This analysis will focus primarily on high income countries, including the UK, and combine GEM data combined with country-specific OECD and World Bank datasets. The intention is to improve our understanding of the factors underlying employment growth in recently created firms, and to develop policy proposals to enhance job creation through this avenue.
- 2. Entrepreneurial activity, entrepreneurship types and institutions: The prevalence of entrepreneurial activity varies a lot across countries. Using World Bank registration data, new firm entry rates average about 4.0% per annum in high income economies, as against less than 1% in low income countries. Even within the former category there is great heterogeneity, with Australia, New Zealand and the UK being relatively high (6%-9%) and some continental countries like Germany and Italy being much lower (less than 2%). GEM data tells a similar story, with high prevalence rates of entrepreneurship in the United States (typically 12% or more) and Finland (10%) but much lower rates in Northern and Southern continental Europe. It is not yet clear what these variations imply for economic performance; high rates of entrepreneurial entry do not automatically translate to fast economic growth because there is so much noise in the data, and because so little entrepreneurial entry is Schumpeterian. It is also the case that entrepreneurial activity varies considerably over time. World Bank data suggests an increase during the post-2008 recession, but this was not uniform. The UK saw an increase for example in self-employment rates but this did not occur in Germany. Second countries vary considerably in the type of entrepreneurial activity. Developing countries have a lot of low aspiration and often informal entrepreneurial activity; developed economies have much less entrepreneurial activity in absolute volume but it is more commonly “opportunity” based and of high growth aspiration form. The proportion of entrepreneurs who are female also vary considerably, even amongst developed economies; highest in the US or Australia and lower in France and Japan. Finally, though an increasing proportion of entrepreneurs everywhere are “social entrepreneurs”, there is great cross country heterogeneity. Social entrepreneurship is a higher proportion of total entrepreneurship in the US and Norway than for example the UK or Germany. There are a number of possible explanations for this heterogeneity both among high income countries and between high and low income economies. These include the business environment, as defined for example through the World Bank Doing Business dataset; the policy arrangements; the depth and strength of financial markets; and legal and institutional structures ranging from the specification of bankruptcy arrangements to the dangers of expropriation indicated by corruption or rent seeking.
- 3. New sources of finance for entrepreneurial companies: Crowdfunding The existence of an equity gap – the inability of small ﬁrms to access the ﬁnance they need to grow – has been a long-term challenge for UK governments. Successive government have acknowledged the importance of the formal and informal venture capital for small businesses, implementing tax and other initiatives in support of early-stage entrepreneurial investment. In the past few years, an entirely novel mechanism for raising capital, based on the exploitation of networks through social media, has generated significant research interest as well as media attention. Crowdfunding refers to a suite of alternative financing tools which are both novel and potentially transformative in the way that new ventures are financed. Attention has tended to focus on gift-type crowdfunders, for example in the financing of albums or films via firms like Kickstarter, where artists receive money from their social network in exchange for rewards associated with the product itself. The focus of this project is instead on equity crowdfunding, which offers founders of new ventures an on-line social media marketplace where they can access a large number of investors who, in turn, each use a relatively small amount of money to finance initiatives that they find attractive. Equity crowdfunding is a fast-moving financial innovation. In the UK alone, equity crowdfunding grew by more than 600 percent between 2012 and 2013. UK crowdfunding platforms have accumulated two to three years of experience in building two-sided networks of investors and entrepreneurs. As such, there are a sufficient number of established firms, clients and investors to develop an adequate database for analysis. Moreover, because the UK regulatory environment has been more open to this innovation than in the US, UK firms have for the moment a global advantage. The US did not permit equity crowdfunding until late in 2013. Although crowdfunding is widely promoted as a dynamic and positive innovation in entrepreneurial finance, it remains poorly understood. Crowdfunding upends the established patterns of raising seed stage finance. Traditionally, entrepreneurs fund new ventures in stages that often start with personal savings, investments from friends and family, private angel investors, and at times professional investors. Successful funding strategies depend on the potential to build strong ties based on interpersonal connections between a small numbers of participants. Crowdfunding, on the other hand, uses a social media platform to join together large number of strangers in temporary financial communities. However, the actual impact of equity crowdfunding on the supply of entrepreneurial finance remains unclear; also whether the entrepreneurial ventures themselves are affected by this financing mechanism. We will use a unique dataset to explore this and other issues.