High-tech Entrepreneurial Firms Research Articles

Extending the role of headquarters beyond the firm boundary: entrepreneurial alliance innovation

Prior research on corporate headquarters (CHQ) characteristics identifies the impact of CHQ location and composition on the innovation outcomes of internal subsidiaries. However, given that external strategic alliances with high-tech entrepreneurial firms represent a key source of innovation for the corporation, corporations must also consider how their choices of CHQ location and composition affect the innovation outcomes of these partners. In a study of 36 incumbent pharmaceutical corporations in 377 strategic alliances with 143 VC-backed biotechnology startups, we leverage detailed hand-collected data on CHQ locations and functions to estimate the effect of the CHQ on the innovation performance of the corporations’ entrepreneurial alliance partners. We find that a 1000-km decrease in CHQ–partner distance leads to an increase of 28 forward citations for the alliance partner, i.e., a 1% decrease in the distance is associated with a 1.7% increase in innovation performance. We find that the co-located presence of the corporation’s R&D function at the CHQ attenuates the benefit of CHQ–partner proximity, particularly for alliances structured for horizontal collaboration at the same part of the value chain. This study contributes to the literatures on both CHQ design and technology alliances.

How does dependence on key employees matter for initial public offerings of U.S. high-tech firms?

Human capital is a key component of the resource base of the firm, particularly in high-tech entrepreneurial firms. In the initial public offering (IPO) context, the IPO firm sometimes identifies individual key employees because the IPO firm is dependent on the services of those employees. However, research is limited on determining the impact of such employee dependence on firm IPO performance. Using a sample of U.S. high-tech firms, we show that the IPO firm's performance is lower when the IPO prospectus discloses such dependence. Among firms with such disclosures, long-tenured executives increase IPO performance. In addition, the effects of long-tenured executives are stronger when multiple key employees are identified in the IPO firm.

High-tech entrepreneurial firms’ innovation in different institutional settings. Do venture capital and private equity have complementary or substitute effects?

ABSTRACTThe paper explores whether venture capital (VC) and private equity (PE) investments have complementary or substitute effects on innovation in high-tech entrepreneurial firms in different institutional settings, focusing on different levels of capital market development, entrepreneurial culture, and intellectual property rights protection. Using a panel sample of 326 firms from 12 EU countries observed from 2009–2013, the empirical results show that the VC/PE effect on high-tech entrepreneurial firms’ innovation is stronger in countries with a less-developed capital market. This suggests that VC/PE investments play a substitute role. A partial substitute role of VC/PE is also detected in firms located in countries with a low entrepreneurial culture. However, no significant evidence emerged regarding the level of protection of intellectual property rights. The results are generally robust to various econometric specifications. The implications of the resulting framework, the study’s limitations, and opportunities for further research are also discussed.

Employee dependence and strategic human capital in IPO of U.S. high-tech firms

Human capital is a key component for the resource base of the firm, particularly in high-tech entrepreneurial firms. However, research is limited in finding the direct impact of human capital of key employees on firm performance. We fill this gap by exploring the effects of dependence on key employees in IPO firms. Using a sample of high-tech firms that went public in the US stock market, we show that the IPO firm's performance is lower when the IPO prospectus discloses such dependence. In addition, among the firms with such disclosures, the long-tenure executives would moderate such negative impact.

Is green the new gold? Venture capital and green entrepreneurship

We test whether born-to-be-green represents a signal toward potential venture capital (VC) investors on a sample of Italian, independent, unlisted, high-tech entrepreneurial firms. We employ several identification strategies by controlling for the major potential signals and the alleged selection bias between green and non-green entrepreneurs. We exploit firm-level information about the “active search for VC financing.” Alternatively, we exploit the cross-local community variation in the awareness about environmental issues in an instrumental variable setting. Our results show that neither running a business based on green technologies nor positioning a business in a green sector per se are strongly correlated with the likelihood to get VC. Instead, we find that born-to-be-green can be a reliable signal for investors only when entrepreneurs perform activities based on green technologies/products and position their business in a green sector, at the same time. Further, we present three contingencies that moderate the association between green business propositions and the likelihood to get VC, namely the technical/scientific education of the founder(s), the origin of the firm as academic spin-out, and the presence of corporate shareholders into the venture’s equity. The paper offers relevant managerial implications.

Is Green the New Gold? Venture Capital and Green Entrepreneurship

We test whether born-to-be-green represents a signal toward potential venture capital (VC) investors - on a sample of Italian, independent, unlisted, high-tech entrepreneurial firms. We employ several identification strategies by controlling for the major potential signals, and the alleged selection bias between green and non-green entrepreneurs. We exploit firm-level information about the “active searching for VC financing”. Alternatively, we exploit the cross-region variation in local government laws to foster green innovations in an Instrumental Variables setting. Our results show that running a green business per se is not correlated with the likelihood to receive VC, while the perception to run a green business is strongly and positively correlated with the likelihood to get VC. When investigating the contingencies associated to the effectiveness of the born-to-be-green signal – and the entrepreneurial ability to sell it – we find that only entrepreneurs who run a green business and perceive it as green are more likely to get VC funding.

Government, venture capital and the growth of European high-tech entrepreneurial firms

Using a new European Union-sponsored firm-level longitudinal dataset, we assess the impact of government-managed (GVC) and independent venture capital (IVC) funds on the sales and employee growth of European high-tech entrepreneurial firms. Our results show that the main statistically robust and economically relevant positive effect is exerted by IVC investors on firm sales growth. Conversely, the impact of GVC alone appears to be negligible. We also find a positive and statistically significant impact of syndicated investments by both types of investors on firm sales growth, but only when led by IVC investors. Our results remain stable after controlling for endogeneity, survivorship bias, reverse causality, anticipation effects, legal and institutional differences across countries and over time and are stable with respect to potential non-linear effects of age and size of entrepreneurial firms. Overall, our analysis casts doubt on the ability of governments to support high-tech entrepreneurial firms through a direct and active involvement in VC markets.

Venture capital financing and the financial distress risk of portfolio firms: How independent and bank-affiliated investors differ

We analyze a sample of European high-tech entrepreneurial firms that received bank venture capital (BVC) financing between 1994 and 2004. We employ a “two-step” matching procedure in order to build a control group composed of (1) comparable firms that received venture capital financing from independent investors (IVCs) and (2) comparable non-invested firms. The econometric analyses suggest that BVC investors are interested in the financial risk profile of the firms they invest in. In fact, before the first round of financing, BVC-backed firms show a lower risk of financial distress than both IVC-backed firms and non-invested firms. However, after the investment, BVC-backed firms exhibit a significant increase in debt exposure, compared to non-invested firms.

Government, Venture Capital and the Growth of European High-Tech Start-Ups: A Firm-Level Panel Data Analysis

Using a new European Union-sponsored firm-level longitudinal dataset, we assess the impact of government-managed (GVC) and independent venture capital (IVC) funds on the sales and employee growth of European high-tech entrepreneurial firms. Our results show that the main statistically robust and economically relevant positive effect is exerted by IVC investors on firm sales growth. Conversely, the impact of GVC alone appears to be negligible. We also find a positive and statistically significant impact of syndicated investments by both types of investors on firm sales growth, but only when led by IVC investors. Our results remain stable after controlling for endogeneity, survivorship bias, reverse causality, anticipation effects, legal and institutional differences across countries and over time and are stable with respect to potential non-linear effects of age and size of entrepreneurial firms. Overall, our analysis casts doubt on the ability of governments to support high-tech entrepreneurial firms through a direct and active involvement in VC markets.

Venture Capital Investments in Europe and Firm Productivity: Independent versus Corporate Investors

Using a new European Commission-sponsored longitudinal dataset – the VICO dataset – we assess the impact of independent (IVC) and corporate venture capital (CVC) investments on the total factor productivity (TFP) of European high-tech entrepreneurial firms during the period 1992-2010. After controlling for potential sources of endogeneity and selection bias, our results indicate that both IVC and CVC investments boost TFP, whereas investments syndicated by both IVC and CVC investors do not. These effects are mostly due to an increase in sales value. Moreover, the dynamics of the impact of VC investments on TFP and its components – sales value, fixed assets, and payroll expenses – differs depending on the type of investor.

Venture Capital Investments in Europe and Portfolio Firms' Economic Performance: Independent versus Corporate Investors

Using a new European Commission-sponsored longitudinal dataset – the VICO dataset – we assess the impact of independent (IVC) and corporate venture capital (CVC) investments on the economic performance of European high-tech entrepreneurial firms during the period 1992-2010. After controlling for potential sources of endogeneity and selection bias, our results indicate that both IVC and CVC investments boost portfolio firms' economic performance. These effects are mostly due to an increase in real sales value. Moreover, the dynamics of the impact of VC investments on firms’ overall economic performance and its components – real sales value, real fixed assets, and real labor costs – differs depending on the type of investor. Finally, we do not detect any impact related to the syndication of investments by both IVC and CVC investors.

Patents, R&D investments and post-IPO strategies

This paper empirically investigates the effect of going public on the evolution of high-tech entrepreneurial firms, focussing in particular on the interaction between innovation variables and financing and investment strategies. Specifically, I confront the effects of the IPO on firms with higher R&D investments versus firms with more patents. Firms with higher R&D investments typically view the IPO as a mechanism to raise external equity, used to pursue investments and to acquire participation in other companies, whereas those with more patents raise more debt capital and invest less after the IPO, as compared to high-tech entrepreneurial firms. I suggest that a large number of patents is an index of technological maturity for high-tech ventures, even more than age and size, that helps investors to individuate firms with a lower level of risk.

Ownership structure, horizontal agency costs and the performance of high-tech entrepreneurial firms

We use the lens of the resource-based view and horizontal agency cost theory to analyse the effect of the presence of different types of individual owners, i.e. owner-managers and non-manager individual shareholders, on the performance of high-tech entrepreneurial firms. Ownership enlargement may contribute to fill the resource gap faced by entrepreneurial firms and improve firm performance. However, whereas owner-managers engender low horizontal agency costs, non-manager individual shareholders generate high horizontal agency problems due to their limited managerial involvement. Our results on a sample of Italian high-tech entrepreneurial firms show that the number of owner-managers has a positive effect on firm performance, whereas the effect of the number of non-manager individual shareholders is negligible. This latter effect becomes more positive, even though still not statistically significant, when firms are highly leveraged, confirming the disciplining role of bank debt.

Ownership Structure and Performance of High-Tech Entrepreneurial Firms: an Analysis of the Relevance of Horizontal Agency Costs

We use the lens of the resource-based view and horizontal agency cost theory to analyse the effect of the presence of different types of individual owners, i.e. owner-managers and non-manager individual shareholders, on the performance of high-tech entrepreneurial firms. Ownership enlargement may contribute to fill the resource gap faced by entrepreneurial firms and improve firm performance. However, whereas owner-managers engender low horizontal agency costs, non-manager individual shareholders generate high horizontal agency problems due to their limited managerial involvement. Our results on a sample of Italian high-tech entrepreneurial firms show that the number of owner-managers has a positive effect on firm performance, whereas the effect of the number of non-manager individual shareholders is negligible. This latter effect becomes more positive, even though still not statistically significant, when firms are highly leveraged, confirming the disciplining role of bank debt.

The effect of technology on learning during the acquisition and development of competencies in technology‐intensive small firms

PurposeThe purpose of this paper is to consider whether the characteristics of a technology affect the type of learning mode used for acquiring abilities related to specific competencies. While technological competencies have a direct impact on firm performance for technology‐intensive start‐ups, few if any of these firms posses all the prerequisite competencies required for a given technology‐product‐market paradigm as the firm enters or remains over time in that market. Consequently, high tech entrepreneurial firms must learn, acquire and develop competencies initially and in response to the changing requirements of industry standard products.Design/methodology/approachThe paper includes a study of all 35 high‐tech start‐ups in the semiconductor silicon industry using primary and secondary source data.FindingsThe characteristics of a technology affect which of ten different learning methods are chosen by a firm to acquire a competence. The study finds that risk, uncertainty, status, pervasiveness, observability, disruptiveness, and centrality are technological characteristics that influence the learning modes that are selected by a firm.Originality/valueThis is the first study to focus on the impact of technological characteristics on learning methods used. Practical and theoretical value in determining under what technological circumstances a learning method should be used to acquire and develop skills with a new technology.

High-Tech Entrepreneurial Firms in a University-Based Business Incubator

This paper considers the underlying processes and contexts of incubation as critical factors in accelerated firm growth in a university-based technology incubator. At the heart of the study is a concern to understand these dynamics in the early stages of incubation, including processes of firm network formation, the capacity to access and use combinations of resources at various phases of incubation, and the ways in which the incubator, as a techno-social space, supports the connection of different resources and their relationships. Building on theoretical frameworks that draw on the conceptual work of Lachmann and Bourdieu, the authors argue that it is possible to identify ‘heterogeneous resources' as different forms of ‘capital’ at work in the incubation process. The empirical case study at a university-based technology incubator illustrates the ways in which university incubators help high-tech start-up firms to build these capabilities through network formation and a variety of types of resource mobilization.

Bank-Affiliated Venture Capital and the Financial Distress Risk of Portfolio Firms

We analyze a sample of European high-tech entrepreneurial firms that received bank venture capital (BVC) financing between 1994 and 2004. We employ a “two-step” matching procedure in order to build a control group composed of i) comparable firms that received venture capital financing from independent investors (IVCs) and ii) comparable non-invested firms. Our econometric analyses suggest that, on the one hand, BVC investors are more risk adverse than other typologies of investors and are more interested to the risk profile of the firms in which they invest. In fact, before the first round of financing, BVC-backed firms show a lower risk of financial distress, both compared to IVC-backed firms and non-invested matched firms. On the other hand, in line with the relationship banking and the VC signaling theories, we find that, after the investment, BVC-backed firms exhibit a significant increase in debt exposure, compared to non-invested firms.

Entrepreneurial human capital, complementary assets, and takeover probability

Although acquisitions of high-tech entrepreneurial firms are of great popularity within the technology transfer process, the limited empirical evidence on this type of technology transfer shows that these acquisitions often lead to dismal results in that a large number of acquired key inventors leave their companies after an acquisition and those that remain exhibit poor performance. This study aims at explaining this phenomenon and adds additional empirical results and explanations to the matching theory of ownership changes. Using a hand collected dataset of all German IPOs from 1997 until 2006, this study shows that the probability of ownership in a young and high-tech firm’s assets being reallocated by means of a takeover significantly decreases with the amount of intangible and complementary assets that are owned by the owner-manager.

CUSTOMER VALUE PROPOSITIONS IN THE CONTEXT OF TECHNOLOGY COMMERCIALIZATION

Many larger, technology incumbent companies involve smaller, high-tech entrepreneurial firms in their innovation processes by outsourcing the development of new products, services, and processes. These R&D firms face the challenge of profitable technology commercialization. In this context, we study the use of customer value propositions and agreements based on these. The problem is that it is not clear how such propositions can be structured under considerable uncertainty. Real options logic seems to lend itself, in principle, to structuring value propositions. However, recent studies have discussed the organizational challenges of applying real options. Hence, we specifically investigate under what conditions real options logic can be an adequate base for the development of the value proposition of a small high-tech entrepreneurial supplier cooperating with a large-scale incumbent firm to develop new technology. We provide empirical support based on two case studies. Ideas for future research conclude this paper.

Customer Value Propositions in the Context of Technology Commercialization

Many larger, technology incumbent companies involve smaller, high-tech entrepreneurial firms in their innovation processes. These parties need to make coordinated investments in R&D under considerable uncertainty. We study the use of customer value propositions and real options in this context. We analyze these as mediating mechanisms that frame the capital spending decisions of individual firms and agencies, and that help to align them with investments made by other firms and agencies in the same or related industries (Miller and O’Leary, 2007). Conditions are hypothesized under which customer value propositions and real options can be appropriate mediating mechanisms, and we provide empirical support based on two case studies.