Exposed: Venture Capital, Competitor Ties, and Entrepreneurial Innovation
Pahnke, E.C., McDonald, R., Wang, D. & Hallen, B. Exposed: Venture Capital, Competitor Ties, and Entrepreneurial Innovation. Academy of Management Journal (Forthcoming).
55 Pages Posted: 4 Sep 2015
Date Written: August 13, 2015
Abstract
This study investigates the impact of early relationships on innovation at entrepreneurial firms. Prior research has largely focused on the benefits of network ties, documenting the many advantages that accrue to firms embedded in a rich network of inter-organizational relationships. In contrast, we build on research emphasizing potential drawbacks to examine how competitive exposure, enabled by powerful intermediaries, can inhibit innovation. We develop the concept of competitive information leakage, which occurs when firms are indirectly tied to their competitors via shared intermediary organizations. To test our theory, we examine every relationship between entrepreneurial firms and their venture capital investors in the minimally-invasive surgical segment of the medical device industry over a 22-year period. We find that indirect ties to competitors impede innovation, and that this effect is moderated by several factors related to the intermediary’s opportunities and motivation to leak important information.
Keywords: Innovation, Entrepreneurship, Networks, Competitive Interaction, Information Leakage, Medical Devices
JEL Classification: M13, O31, O32
Suggested Citation: Suggested Citation