Are private companies more innovative than public companies? What happens to an innovative start-up which goes public? Will the same team of people who were so agile and entrepreneurial in the start-up become even more innovative once they have some capital and recognition behind them? Apparently not. Shai Bernstein of Stanford University compared firms that went public with similar firms that stayed private. His 2014 report, Does Going Public Affect Innovation?, found that when companies went public the quality of internal innovation declined and firms experienced both an exodus of skilled inventors and a decline in the productivity of remaining inventors. However, public firms can more easily attract new human capital and acquire external innovations. Bernstein says that, ‘going public causes a substantial decline of approximately 40 percent in innovation novelty as measured by patent citations.’ At the same time, he found no change in the scale of innovation, as measured by the number of patents.
