Founder social capital and value appropriation in R&D alliance agreements

Abstract

This paper investigates the micro-foundations of value appropriation involving startups and examines the relationship between founder social capital and value obtained by startups in R&D alliance agreements. We build on the bargaining framework for surplus division and propose that founder social capital facilitates a more expansive pool of partnering opportunities and thereby bestows bargaining advantages to a startup, leading it to obtain more value in an R&D alliance deal. More importantly, we develop a novel hypothesis about the complementarity between founder social capital and a startup's technological capabilities to suggest that the bargaining impact of founders’ social capital becomes more pronounced when a startup is also endowed with superior technological capabilities. Furthermore, we suggest that founder social capital can be particularly valuable for startups to secure outside opportunities when there is weak institutional financial support available. Empirical analyses of R&D alliance agreements in the biotechnology industry furnish evidence for our theory.