The Pursuit of Legitimacy: How do AI Startups Navigate Between Institutional Environments?

Abstract

Startups need legitimacy to acquire resources from their environment to survive and thrive. In a born-global industry such as artificial intelligence (AI), startups' legitimacy building is subject to pressures from institutions that are constantly evolving at both macro and meso levels due to AI's huge potentials for creating positive and negative impacts. Yet, we do not know how AI startups deal with such an institutional context because prior studies mostly explored startups in established or static institutional environments. From our embedded multiple-case study of six AI startups based in Montreal (Canada) and Kuala Lumpur (Malaysia), we found that informal norms largely guide AI entrepreneurs despite governments' efforts to influence startup operating frameworks. In the case of weak formal regulations, AI startups purposefully rely on industry norms over other institutions. When corporate social responsibility (CSR) is embedded in meso-level norms, startups are more likely to proactively engage in CSR activities. We also found that industry leaders play a primary role in establishing the governing rules in AI, which in turn inform national policy development. Our study results provide interesting insights for players in emerging industries who want to know about CSR strategies when the industry is writing its rules. Furthermore, our study has implications that help policymakers in their efforts to influence normative institutions with the aim of creating an environment conducive to responsible practices. All in all, our study contributes to the literature a better understanding of entrepreneurs' legitimacy building through CSR in dynamic institutional settings.