Venture Capitalists and Cooperative Start-up Commercialization Strategy

Abstract

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.

Strategic alliances by venture capital backed firms: an empirical examination

“…This type of valueStrategic alliances by venture capital backed firms 181 added activity is predicated on the capability of the venture capital firm to tap extensive networks of headhunters, patent lawyers, investment bankers, and advisory services to help the company succeed (Gorman and Sahlman 1989;Hsu 2004;Sahlman 1990). Extant research also provides descriptive and empirical evidence that venture capital firms facilitate inter-organizational cooperation (Hsu 2006;Lindsey 2008). The formation of strategic alliances may be a way to address the challenges associated with external risk.…”

“…VentureXpert is a private database of Venture Economics, which is a division of Thomson Financial. These data are used extensively in venture capital research (Gompers 1995;Hochberg et al 2007;Hsu 2006;Lindsey 2008). They contain detailed venture financing information such as: (1) number of rounds of funding received; (2) average amount of funding received per round; (3) date of the first and the last round of funding; (4) number of venture capital firms involved; (5) founding date of the company.…”

“…Lindsey (2008) finds that strategic alliances are more frequent among companies that share a common venture capitalist, suggesting that venture investors use their specialized knowledge to govern the flow of information and identify profitable alliance opportunities. Hsu (2006) demonstrates that venture-backed startups form significantly more strategic alliances than a comparable set of startups that do not have venture backing. While we know that venture capitalists promote inter-firm alliances, within the context of venture capital research the only answer for why this is the case is that venture-backed firms with more alliances are at greater hazard for going public (Ozmel et al 2007) and tend to have higher valuations at the time of the initial public offering (Chang 2004;Nicholson et al 2005;Stuart et al 1999).…”

Impact of Venture Capital Investment Syndication on Enterprise Lifecycle and Success

“…This however can potentially highlight the strength of VC, especially in developing new ventures. As highlighted by Hsu (2006) and Alexy, Block, Sandner & Wal (2012), venture capital has the most significant contribution among other financial intermediaries in terms of shaping and developing new ventures.…”

A capital partnership: how human and venture capital affect the growth of high‐tech start‐ups

“…Second, portfolio companies may also take advantage of the network of social contacts of VC investors with potential customers, suppliers, and alliance partners. Therefore, portfolio fi rms may fi nd it easier to get access to external resources and competencies that are out of reach for non-VC-backed fi rms (e.g., Colombo et al, 2006;Hsu, 2006;Bottazzi et al, 2008;Lindsey, 2008).…”