Location
Level 0, Open Space, Owen G. Glenn Building
Start Date
12-15-2014
Description
I develop a model of the Silicon Valley engineer labor and venture capital (VC) markets. Software engineers choose between joining an established software company or founding a venture-backed startup. In equilibrium, they are indifferent between entrepreneurship and employment. The model predicts equilibrium market wages, the terms of VC investments (i.e., the fraction of equity retained by the entrepreneur) and the minimum ``quality'' of the ideas pursued by startups, as represented by the VC funding ``standard.'' This funding standard is inversely related to the number of new startups per period. Predictions about how the equilibrium is affected by the costs of startups, the cost of capital, the supply of ideas and the supply of engineers are presented.
Recommended Citation
Horton, John, "A Price Theory of Silicon Valley" (2014). ICIS 2014 Proceedings. 19.
https://aisel.aisnet.org/icis2014/proceedings/EconomicsandValue/19
A Price Theory of Silicon Valley
Level 0, Open Space, Owen G. Glenn Building
I develop a model of the Silicon Valley engineer labor and venture capital (VC) markets. Software engineers choose between joining an established software company or founding a venture-backed startup. In equilibrium, they are indifferent between entrepreneurship and employment. The model predicts equilibrium market wages, the terms of VC investments (i.e., the fraction of equity retained by the entrepreneur) and the minimum ``quality'' of the ideas pursued by startups, as represented by the VC funding ``standard.'' This funding standard is inversely related to the number of new startups per period. Predictions about how the equilibrium is affected by the costs of startups, the cost of capital, the supply of ideas and the supply of engineers are presented.