Experimentation, Learning, and Appropriability in Early-Stage Ventures

Abstract

This study examines the tension between learning and appropriability in the experimentation process of early-stage ventures. I argue that when formal intellectual property is weak, the learning benefits of experimentation may be offset by its imitation risks. I test this argument on a hand-collected dataset of 1,203 US-based software ventures, exploiting the software release life cycle terminology to measure experimentation and the 2014 US Supreme Court decision Alice Corp. v. CLS Bank International as a negative shock to patent protection. Following this ruling, the affected ventures are less likely to engage in experimentation. This relationship is stronger for ventures facing low uncertainty or high competition. Overall, the evidence suggests that ventures perceive the tension between learning and appropriability and appear to adjust their strategy accordingly.