Extensive work shows that organizational context predicts the likelihood of employees’ transitions to entrepreneurship. The literature typically focuses on the role of firm size as a comprehensive proxy for the differences in acquired organizational knowledge and skills. While most prior studies have focused on studying single firms and experience immediately preceding entrepreneurship, recent work has started examining the role of prior organizational experience more broadly. We expand this view by arguing that focusing on early employment in one’s career trajectory is particularly relevant. By doing so, we bring together the literature on the role of prior experience in entrepreneurship with the literature on formative work experiences. Using a rich employer-employee linked dataset, we find that working for a smaller first employer is an important driver of entrepreneurial transitions even for employees who hold multiple jobs and who work for a large firm immediately before transitioning to entrepreneurship. We also find that early career experience in all small firms is not equal. The small firm effect does not extend to very small firms that exhibit low growth, diverging from arguments made in prior work. Employees who start their careers in these small firms do not accumulate diverse experiences across jobs either. We employ an instrumental variable approach to isolate the effect of firm size from the effects of self-selection and heterogeneity in preferences.
