Innovative Products vs. Specialized Complementary Resources: The Determinants of Alliance Funding

Abstract

We examine the effects alliance partners’ complementary asset possession have on the level of payments promised by funding firms (firms which provide money to develop prospective products) to the early stage technology ventures (young firms which uncover the new technology to be developed into a commercializable product). On the one hand, the value of the innovative idea under development by the early stage technology venture provides a meaningful bargaining position in contract negotiations. Thus, a more valuable innovative idea should generate larger promised remuneration for early stage technology firms upon signing an alliance agreement. However, established firms holding specialized complimentary assets can leverage those assets in such a way as to minimize the amount of money the early stage technology venture firm is likely to negotiate as part of the alliance contract. We examine the effects these two countervailing forces have on money promised to the early stage technology venture by the funding...