This study empirically evaluates the certification and value-added roles of reputable venture capitalists (VCs). Using a novel sample of entrepreneurial start-ups with multiple financing offers, I analyze financing offers made by competing VCs at the first professional round of start-up funding, holding characteristics of the startup fixed. Offers made by VCs with a high reputation are three times more likely to be accepted, and highreputation VCs acquire start-up equity at a 10-14% discount. The evidence suggests that VCs' "extra-financial" value may be more distinctive than their functionally equivalent financial capital. These extra-financial services can have financial consequences.
ABSTRACTThis study empirically evaluates the certification and value-added roles of
Why and how do resources provide sources of competitive advantage? This study sheds new light on this central question of resource-based theory by allowing a single resource-entrepreneurial-firm patents-to play distinctive roles in different competitive arenas. As rights to exclude others, patents serve a well-known role as legal safeguards in product markets. As quality signals, patents also could improve access and the terms of trade in factor input markets. Based on the financing activities of 370 venture-backed semiconductor startups, we provide new evidence that patents confer dual advantages in strategic factor markets, improved access and terms of trade, above and beyond their added product-market protection. The study has important implications for empirical tests of resource-based theory and the measurement of resource value.
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When Does Start-Up Innovation Spur the Gale of Creative Destruction?ABSTRACT This paper examines the determinants of commercialization strategy for start-up innovators. We examine whether the returns on innovation are earned through product market competition as opposed to cooperation with more established firms (either through licensing, strategic alliances or outright acquisition). Our key hypotheses are that the relative returns to cooperation are increasing in (a) the control of intellectual property rights, (b) low transaction costs and (c) the cost of the sunk assets associated with product market entry. We find support for these ideas using a novel dataset of the commercialization strategies of start-up innovators. The results suggest that the procompetitive benefits of start-up innovation -the gale of creative destruction -depends on the severity of imperfections in the "market for ideas." Journal of Economic Literature Classification Numbers: L10, L14, O31 and O32.
This paper examines the possible impact of venture capital (VC) backing on the commercialization direction of technology-based start-ups by asking: To what extent (if at all) do VC-funded start-ups engage in cooperative commercialization strategies (strategic alliances or technology licensing, or both) relative to a comparable set of start-ups, and with what consequences? To address these questions, I assemble a novel data set that matches firms receiving a federal research and development subsidy through the U.S. Small Business Innovative Research program to VC-funded firms by observable characteristics in five technology-intensive industries. These data allow decoupling of cooperative activity resulting from start-up development via the passage of calendar time from that due to association with VCs. An analysis of the 696 start-ups in the sample (split by an external funding source) suggests substantial boosts in both cooperative activity associated with VC-backed firms and in the likelihood of an initial public offering.
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