Spin-offs are new businesses created by former employees of an existing “mother” company to exploit a technology or business idea that was developed, but not pursued by this company. Using data from 156 firms in high technology sectors in Switzerland, this research investigates how spin-off founders are able to mobilize their “social capital”, or in other words the network of informal contacts created during their previous employment, and the good reputation of their mother company.

During the delicate start-up phase, this social capital allows new businesses to obtain financial and material resources more easily and more cheaply, which is crucial when firms are young and have few resources. Spin-offs that are created in sectors which are industrially or technologically similar to those of their mother companies are also more likely to receive support and endorsement from their mother companies. This also helps them on their way, as investors, potential employees and business partners see them as more credible from the start.

The author of the research, Diego Chantrain, explains:

- New ventures are faced with many challenges in their early development years: they have few resources, few employees and limited credibility with which to attract the customers, employees and business partners that could provide the resources for growth. It is often a ‘chicken and egg’ problem. Not surprisingly, the early years of growth are when companies face the greatest difficulties and are most at risk of failing. By looking at how new spin-off firms obtain and utilize their social capital, we gain insights into successful strategies in early development stages.