Do Non-Competes Curtail Startup Investments? Brownsberger and Rowe Do A Data Dive and Kick Off A Deeper Discussion

8/10/09Follow @bbuderi

The argument over non-compete clauses in employment agreements is front and center in most discussions over ways Massachusetts can square up better against Silicon Valley. Proponents of getting rid of non-competes argue that they curtail innovation. Fearful of getting sued when they leave their employers, so the theory goes, would-be entrepreneurs either forego starting their own companies or move to places like California where the courts don’t enforce non-competes.

Massachusetts state Representative Will Brownsberger and Xconomist Tim Rowe, CEO of the Cambridge Innovation Center, have both advocated getting rid of non-competes. Brownsberger filed a bill early this year seeking to outlaw them altogether, but last month teamed with fellow representative Lori Ehrlich to file a compromise bill that would limit, but not outlaw non-competes. Just five days before news of the compromise bill came out, Rowe contributed a post to the Xconomist Forum detailing his own views on why non-competes should be banned.

Rowe’s post attracted quite a few comments. But this past Saturday, Brownsberger kicked off a new round of discussion in the comment stream by raising a question about Rowe’s interpretation of venture investment trends in California and Massachusetts.

Rowe responded right away, and both dived deeper into venture data to come to an interesting and very collegial understanding that they also shared with readers. One conclusion was that if you look at venture investment data over the past 15 years, there really isn’t evidence one way or another that non-competes hinder Massachusetts startups. As Rowe wrote: “I agree with Will’s analysis: measured from 1995-2009, the ratio of VC investment in California to New England is almost exactly flat, and since non-compete policy didn’t change over this period, we can’t infer anything about non-competes relative to VC investment.”

Their discussion raised other questions—including wondering why Massachusetts seems to have lost share in more recent years to California after gaining ground from 1995 to 2002. In the end, Rowe and Brownsberger seem to agree that the venture data itself is ambiguous, and that it’s important to look at other information—such as the actual experiences reported by employees, investors, and business leaders—to gauge the impact of non-compete agreements. Since this all happened on a summer Saturday, and since they are looking for some more insights from others, I thought I’d point it out. You can find the comment stream here.

Bob is Xconomy's founder and editor in chief. You can e-mail him at bbuderi@xconomy.com, call him at 617.500.5926. Follow @bbuderi

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  • John

    Any news on this. I am looking forward to an answer whether non-competes are illegal or not