Inventor Commingling and Innovation in Technology Startup Mergers & Acquisitions

Abstract

How does knowledge recombination via inventor “commingling” in technology startup acquisitions relate to innovation outcomes? Commingled teams have inventors from the acquiring and acquired firms, and reflect collaboration benefits and costs of integrating human resources across organizational boundaries. The benefits to such team design are “unsticking” knowledge and introducing variety to the possible knowledge to be recombined, while the costs include disrupted team standard operating procedures and routines and the need for enhanced coordination. In addition, innovation efficacy of commingled teams may also depend on the form of inter-organizational R&D cooperation, ranging from less integrated (strategic alliances) to more integrated (M&As) structures. We argue that the control and authority associated with integrated structures aids innovation. We assemble a large panel dataset of technology startups which eventually experienced a merger, some of which also had a prior alliance with the acquirer. Using a difference-in-differences design, we find that innovation quantity, quality, and exploration all increase post-merger for firms with higher rates of inventor commingling. Since commingling can be endogenous to the cost of inventor collaboration, we exploit exogenous introductions of direct flights between the acquired and acquiring firms to instrument for commingling, and find robust results. Inventor-level commingling is also more effective under integrated collaboration structures.