TY  - JOUR
AU  - Arora,Ashish
AU  - Nandkumar,Anand
TI  - Cash-out or flame-out! Opportunity cost and entrepreneurial strategy: Theory, and evidence from the information security industry
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 15532
PY  - 2009
Y2  - November 2009
UR  - http://www.nber.org/papers/w15532
L1  - http://www.nber.org/papers/w15532.pdf
N1  - Author contact info:
Ashish Arora
Fuqua School of Business
Duke University
Box 90120
Durham, NC 27708-0120
Tel: 919 660 7746
Fax: 919 684-2818
E-Mail: ashish.arora@duke.edu

Anand Nandkumar
Indian School of Business
E-Mail: Anand_Nandkumar@isb.edu
AB  - We analyze how entrepreneurial opportunity cost conditions performance. We depart from the literature on entrepreneurship which identifies survival with performance. Instead, many entrepreneurs aim for a cash-out (IPO or acquisition), especially in innovation based industries. Striving for a cash-out makes mistakes more likely and increases the probability of failure. High opportunity cost entrepreneurs will attempt to cash-out (IPO or friendly acquisition) quickly, even if it implies a higher risk of failure. Entrepreneurs with fewer outside alternatives may tend to linger on longer.  We formalize this intuition with a simple model.  Using a novel dataset of information security startups we find that entrepreneurs with high opportunity costs are not only more likely to cash-out but they are also more likely to fail.  As well, our results confirm the predicted role of venture quality in conditioning the relationship between entrepreneurial opportunity cost and entrepreneurial performance.
ER  -