How far from the tree does the (good) apple fall? Spinout creation and the survival of high-tech firms

We develop a model of spinout creation and survival to explain how the initial product market strategies of spinouts may differ with respect to their parent's and how this difference affects their success. We test the model using detailed information on all the entrants in three markets in the Local Area Networking (LAN) industry during the 1990s. Our findings are consistent with the implications of the theoretical model. Concerning spinout generation, the parent firm's technological know-how plays an important role for differentiation. In particular, we find that spinouts tend to imitate 'average' parents and 'keep away from the extremes' (i.e., parents whose knowhow is 'too close' or 'too distant' with respect to the technological frontier). Concerning spinout survival, we find that more technologically advanced spinouts survive longer and that there is no direct effect of a parent's know-how on spinout's survival. Finally, too much differentiation with respect to the parent firm can be detrimental for spinout success.