Formation of new start-ups: does business diversity in existing start-ups matter?

Does the presence of a diverse mix of start-up businesses within an area promote the creation of new start-ups? This study focuses on innovative start-ups in central Tokyo, Japan, analysing how related and unrelated variety, based on start-up business fields, influence start-up creation within 500- and 1000-m mesh units using a negative binomial regression model. The results show that both varieties foster entrepreneurship, but as area size increases, the impact of unrelated variety decreases, while that of related variety increases. This suggests that geographical proximity substitutes for cognitive proximity, emphasising the importance of relatedness in broader geographical contexts.