Driving a More Prosperous Future
Seed Accelerators, Information Asymmetry, and Corporate Venture Capital Investments
Management Science
Beyond financial incentives, investments by Corporate Venture Capitalists (CVCs) are often motivated by strategic objectives, such as gaining early exposure to emerging technologies. However, in the presence of information asymmetry, CVCs tend to invest in startups with a high degree of business relatedness—startups that are less risky but lacking in knowledge novelty—which are not ideal for achieving their strategic objectives. With startup accelerators showing promise in mitigating the information asymmetry problem, we examine how a CVC’s investment pattern in a region shifts following a startup accelerator’s entry, with a particular interest in the degree of business relatedness between the CVC’s parent corporation and its portfolio companies. Analyses reveal that CVCs increase investments in startups that are dissimilar to their parent’s business following the entry of startup accelerators. We show that the two pathways through which accelerators reduce information asymmetry—quality signals, and mentorship and training—likely contribute to this change. In addition, the change is most pronounced for CVCs whose parent firm operates in an IT-using—rather than an IT-producing—industry, suggesting that accelerators help IT-using firms gain a foothold in the technology space through CVC investments. These findings deepen the understanding of the role that startup accelerators play in the entrepreneurial ecosystem against the backdrop of digital transformation occurring in nearly every industry.
Raveesh Mayya, NYU and Peng Huang, UMD
Biodiversity Entrepreneurship
Review of Finance
We study an emerging class of start-up organizations focused on biodiversity conservation and the challenges they face in financing these ventures. Using a novel machine learning method, we identify 630 biodiversity-linked start-ups in PitchBook and compare their financing dynamics to other ventures. Biodiversity start-ups raise less capital but attract a broader coalition of investors, including not only venture capitalists (“value investors”) but also mission-aligned impact funds and public institutions (“values investors”). Values investors provide incremental capital rather than substituting value investors, but funding gaps persist. We show biodiversity-linked start-ups use social media activity to help connect with value investors. Our findings can inform policy and practice for mobilizing private capital toward biodiversity preservation, emphasizing hybrid financing models and strategic communication.
Sean Cao, Robert H. Smith School of Business, University of Maryland
The Theory-Based View and Strategic Pivots: The Effects of Theorization and Experimentation on the Type and Nature of Pivots
Strategy Science
We examine how formalization in cognitive processes (theorization) and evidence evaluation (experimentation) influence the type (frequency and radicalness) and nature (impetus, clarity, and coherence) of entrepreneurial pivots. We use a mixed-method research design to analyze rich data from over 1,600 interviews with 261 entrepreneurs within a randomized control trial in London. A quantitative analysis that complements human-coded and machine learning-coded measures reveals that conditional on pivoting, theorization and experimentation are complementary in their association with making single radical pivots. The extensive qualitative-case comparison further elucidates interactions between theorization and experimentation that generate differences in the nature of pivots that range from purposeful (clear and coherent rationale deriving from articulated theory and experimentation), postulatory (informed by articulated theory but not incorporating nuances or surprises generated from experimentation), and remedial (stemming from adjustments to preformed theories that drew on prior experiences) to reactive (driven by environmental stimuli absent a clear theory of value). These insights contribute to the theory-driven strategic decision-making literature and offer practical insights for entrepreneurs, incubators, and policymakers on the benefits of a scientific approach to entrepreneurship.
Valentine, Jacob (Doctoral Candidate, University of Maryland); Novelli, Elena (Professor, Bayes Business School); Agarwal, Rajshree (Lamone Professor of Strategy and Entrepreneurship, University of Maryland)