Does incubation lead to innovation? Evidence from the Swedish incubation program

This report addresses a potentially important effect of incubators, namely their impact on innovation. Using rich individual-level data on CEOs and employees and whether they are inventors (has patented), we can link these individuals to incubator firms and the general population of individuals and firms. In this way, we are able to create a matched sample of treated and controls allowing us to contrast the effects on treated individuals with those in the matched control group, and derive a plausibly causal effect on treated individuals comparing their performance after incubation with that before incubation in so-called difference-in-differences regressions. The dataset offers a number of advantages. First and foremost, the individuals can be followed longitudinally before and after incubation. This allows us to understand how their inventive capacity changes during incubation, both compared to themselves and to the control group. Another advantage of these data, in contrast to many other sources of innovation data, is that there is no firm size threshold set. Surveys to collect innovation data are typically sent to firms with a certain size threshold in terms of employees or sales value, with the idea of creating representative samples. By contrast, the inventor dataset employed here make it no less likely that small firm inventors are in the sample, and this is advantageous because incubator firms are typically quite small. A methodological innovation in the context of incubation for the purposes of this report is that we are able to match on pre-treatment characteristics on the level of individual rather than on the firm. This also differs from most other studies that use patent data, which tend to use patents linked to firms. As is known patent data have various caveats but is the only option in the current case. Alternative innovation indicators tend to be survey-based and small firms and/or firms with low turnover are not covered, a particularly disturbing fact when the interest is on small firms coming from incubators. The report shows that incubation has a positive innovation effect on some individuals that participate in incubation. The main finding is that CEOs, plausibly causally, increase their patenting by 300 per cent compared to the control group, on average. This effect is very clear for CEOs, who increase their patenting by 300 per cent compared to a carefully matched control group. The effect on CEOs is strong and seems to last long after incubation. Positive effects mainly pertain to the subpopulation of previous non-inventors, rather than previous inventors. For employees, although simple descriptive statistics suggest that there is an effect, matched sample regressions cannot systematically find significant effects. Putting these results into context, and together with the earlier report (Tillväxtanalys, PM 2018:02), we have two key results: 1) incubation does not foster economic performance measured as growth in turnover and value added, at least not in the short run following incubation and 2) incubation does foster innovativeness, measured with patent