If Condition (7) holds, the employee stays in the firm; otherwise, she forms a start-up.
Appendix A shows that for appropriate values of σ and δ we have that XFs + XE s − XFm N 0. Furthermore, we assume that the costs of start-up formation are sufficiently small that a start-up always forms if the founder can appropriate the entire profits (i.e. for α = 1). Additionally, we assume that in case the founder can appropriate the entire profits, her profits are increasing in K. Finally, in order to guarantee the existence of a finite efficient investment level (i.e.the optimal investment considering the sum of profits of the incumbent, the employee, and the provider of complementary assets), we consider only scenarios in which πFs(K) + πEs(K) − C(K) is strictly concave. Formally, recalling that K ∈ [Kl, Ku], 0