Entrepreneurial Spawning from Remote Work

Alan Kwan | Ben Matthies | Richard Townsend | Ting Xu

Jul 30, 2025

Key Takeaways

Research Question: This study investigates whether the rise of remote work during the COVID-19 pandemic prompted employees to leave their jobs and start new ventures.
Data & Method: The authors analyze internet traffic data to measure firm-level remote work and LinkedIn job histories to track entrepreneurial spawning across U.S. firms (2020–2022), using instrumental variables (IV) and difference-in-differences (DiD) for causal identification.
Findings: The authors find firms with higher levels of remote work saw significantly more employees transition into entrepreneurship.
The effect is causal, robust, and not explained by preference shifts or forced turnover, and the resulting startups are of higher-than-average quality.
Mechanism: The primary mechanism appears to be that remote work enables entrepreneurial experimentation by providing time flexibility and downside protection.

Source Publication:Kwan, Alan, Ben Matthies, Richard Townsend, and Ting Xu. Entrepreneurial Spawning from Remote Work. SSRN Working Paper.

Remote Work and the Rise of New Firms

The COVID-19 pandemic catalyzed a historic transformation in work arrangements, with remote work moving from a fringe benefit to a widespread norm. At the same time, the U.S. witnessed a surge in new business formation. This paper explores the potential causal link between these two trends. Specifically, it asks whether firms that shifted more aggressively toward remote work saw greater entrepreneurial “spawning,” that is, employees leaving to found their own companies.

This question sits at the intersection of labor economics, organizational behavior, and entrepreneurship. If remote work fundamentally alters how people allocate their time, manage risk, or envision career trajectories, it could reshape not only firms’ internal dynamics but also the broader entrepreneurial landscape.

Figure 1: Changes in Average Remote Work (RW) from 2019 to 2021

Note: This graph shows the evolvement of average firm-level RW measure from January 2019 to December 2021, with January 2019 normalized to 0. We compute the monthly averages among firms active in February 2020.

Measuring Remote Work and Identifying Causal Effects

The authors construct a novel measure of firm-level remote work by analyzing internet activity patterns. Using data that classify IP addresses into business, residential, mobile, or VPN categories, they compute the share of work-hour internet traffic originating from remote locations. This information allows them to estimate, at scale, how extensively each firm adopted remote work practices during the pandemic.

To measure entrepreneurial spawning, they rely on job histories from LinkedIn data accessed via Revelio Labs. A spawning event is defined as an individual reporting a founder or owner role at a new firm, beginning within one year of the company’s founding and within the first five reported employees.

The sample includes all U.S.-based firms with at least 10 employees as of February 2020 and tracks spawning activity between March 2020 and December 2022. The core analysis uses both ordinary least squares and two-stage least squares regressions to estimate the effect of firm-level remote-work intensity on spawning outcomes. To address endogeneity concerns, the authors employ two IVs: pre-pandemic average commute distance and the extent of local business closures due to lockdowns.

Further robustness checks include varying the definitions of remote work and spawning, limiting the sample to larger firms or continuing employers, and performing analyses at both the firm and individual levels. A panel event study traces the dynamic impact of remote work over time.

Remote Work Encourages High-Quality Entrepreneurship

The results reveal a strong, positive relationship between remote work and entrepreneurial spawning. A one-standard-deviation increase in remote work is associated with a 5% rise in individual-level spawning and a 4% rise in firm-level spawning share. The IV estimates confirm this relationship and suggest the effect is causal as well as robust.

Importantly, the new firms these entrepreneurs create are not marginal or transient ventures. On average, they employ 38% more people at founding and are 171% more likely than other startups to receive venture capital funding. The effect is particularly pronounced in high-risk, high-reward sectors: remote work increases spawning into employer firms by 184% and boosts spawning into VC-backed firms by nearly 300%.

These effects are stronger for entrepreneurs who start their firms after formally leaving their wage employment, and they persist through 2022. Individuals who transitioned into entrepreneurship remained in their founder roles over time, suggesting the decision to start a business was not a temporary or fallback response to labor market disruptions.

Figure 2: Firm-Level DID Dynamics

Note: These figures show the firm-level dynamic DID estimates. The sample tracks a fixed set of employees employed as of February 2020, tracking their employment histories from 2016 to 2022, regardless of whether they changed employers during that period. We then link these individuals’ spawning events (Panel A and C) and founder status (Panels B and D) to their Feb2020 employers and collapse to the Feb2020-firm-year level. We restrict to firms with employment size of 10 to 5000 as of February 2020.

Why Remote Work Spurs Entrepreneurship

What accounts for this shift toward entrepreneurship among remote workers? The evidence points to an “experimentation” mechanism. Remote work gives employees greater control over their time—eliminating commutes, reducing direct oversight, and enabling more flexible schedules. These conditions allow workers to explore business ideas while still holding a wage job, offering a form of downside protection.

Supporting this interpretation, the effect of remote work on spawning is especially strong in industries with high rates of young-firm failure, where the ability to experiment before committing is particularly valuable. Moreover, among parents of school-aged children, spawning was more pronounced when local schools returned to in-person learning, likely reflecting a temporary increase in available time at home. These patterns suggest autonomy or job dissatisfaction are not the sole drivers of the effect; rather, remote work provides a unique opportunity for low-risk, high-reward experimentation.

The authors also rule out alternative explanations such as shifts in worker preferences for flexibility or in-person interaction. In fact, the quality of spawned firms and the persistence of founder status strongly challenge the notion that remote work leads primarily to low-quality or temporary ventures.

Broader Implications for Policy and Firms

These findings carry meaningful implications for both policymakers and employers. By fostering conditions conducive to entrepreneurial experimentation, remote work may not only benefit individual workers but also contribute to innovation and productivity at the aggregate level. The study estimates that at least 11.6% of the post-pandemic increase in new firm entry can be attributed directly to remote-work-enabled spawning.

From a spatial-equity perspective, remote work may also help decentralize entrepreneurship, enabling individuals outside traditional innovation hubs to start high-growth ventures. For incumbent firms, however, the increased risk of losing entrepreneurial employees may warrant new strategies for retention or internal innovation.

Future research should explore the long-run consequences of this shift, including its effects on organizational knowledge spillovers, firm productivity, and the broader geography of startup ecosystems. As hybrid and remote work arrangements continue to evolve, so too may their role in shaping the next generation of entrepreneurs.