The entrepreneurs mode of entry: Business takeover or new venture start?

We analyse the decision to become an entrepreneur by either taking over an established business or starting a new venture from scratch. A model is developed which predicts the determinants of entrepreneurs’ choices of entry mode. The new venture creation mode is associated with higher levels of schooling and wealth, whereas managerial experience, new venture start-up capital requirements and risk promote the takeover mode. Entrepreneurs whose parents run a family …rm are predicted to invest the least in schooling, since (costly) schooling reduces search costs and these individuals have the lowest probability of needing to search for a business opportunity outside their family. A sample of data on entrepreneurs from the Netherlands provides broad support for the theory. Implications for policy-makers concerned about the survival of family …rms lacking within-family successors are discussed. Corresponding author: van Praag, University of Amsterdam, Roetersstraat 11, 1018 WB Amsterdam, The Netherlands. Phone: +31-20-525 4096. Email: [email protected]. We gratefully acknowledge helpful comments from George Baker, Rob Fairlie, Roy Thurik and other participants of the Amsterdam Centre for Entrepreneurship and Gate2Growth workshop held in Amsterdam, 2006.