Academics That Start New Businesses

Various policies have been devised to stimulate the creation of spinoffs from universities by academics. But we still do not know whether it is privately beneficial for academics to start new businesses. To address this question we compile total earnings for the universe of 478 individuals aged 60 or less working at Swedish universities in Medicine, Natural Sciences or Engineering who quit to become full-time owner-entrepreneurs or employed in a small startup between 1999 and 2008. Approximately 0.9 percent of all academics become full-time entrepreneurs every year in Sweden. Earnings data include tax filings on wages, business income, dividends and capital gains. The average annual earnings as academics prior to leaving were SEK 397,000, while they were SEK 450,000 after leaving. This difference in earnings is a result of pooling effects over years with generally increasing earnings. When controlling for year dummies this difference instead becomes negative, but only marginally significant. The difference in log (percentage) earnings is negative and significant, but disappears after controlling for covariates. Very little explains the earnings difference. There is negative selection into entrepreneurship; those with lower pre-entry earnings are more likely to become entrepreneurs.

Source. The authors (Astebro, Braunerhjelm, & Broström, November 2012) conclude:

. . . [F]ull-time entrepreneurship by former university-employed is not a frequent phenomenon. Neither does entrepreneurship appear to be very important for those that undertake it. Most of them glide into it gradually and very rapidly switch out of it. The gains from becoming an entrepreneur are equivalent to remaining at work at the university and entail much greater income risk.

Probably the best strategy for an academic who wants to be an entrepreneur is to have one foot in school and the other in her venture, which is actually very common among university professors in developing countries.