Abstract
IntroductionTo avoid making costly mistakes, reduce the cost and time of engaging stakeholders, help overcome blind spots and biases, and focus attention, we need a much better understanding of what causes what – and why – during the investment stage of a technology firm. The investment stage is when a new technology firm must assemble and invest resources to execute on the
Highlights
To avoid making costly mistakes, reduce the cost and time of engaging stakeholders, help overcome blind spots and biases, and focus attention, we need a much better understanding of what causes what – and why – during the investment stage of a technology firm
Application of the extended model to a real-life situation generated two important insights: i) when private benefits include learning from experimentation, the number of deals increases and ii) at the start of the investment stage, private benefits drive deal-making, whereas at the end of the investment stage, cash profits derived from asset ownership drive deal-making
The work of Hart and Holmstrom suggests that this coordination is more likely to occur through integrated resources since it effectively discounts the value of private benefits
Summary
To avoid making costly mistakes, reduce the cost and time of engaging stakeholders, help overcome blind spots and biases, and focus attention, we need a much better understanding of what causes what – and why – during the investment stage of a technology firm. It links the theory of the firm, through the use of the Hart and Holmstrom model (2010; tinyurl.com/bver2xy), with the theory of entrepreneurship during the investment stage of a new technology firm. To examine a technology firm during the investment stage, we use and extend the model that Hart and Holmstrom (2010; tinyurl.com/bver2xy) developed to examine the relationship between two units inside a firm. We propose that a deal is the reference point based on the belief that the sequence of deals a new firm makes and executes during the investment stage provides a better view of the firm’s capabilities than an inventory of its assets and contracts. The Hart and Holmstrom model examines three cases of cooperation: 1. Non-integration without cooperation
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