Corporate Investment Relationships and the Search for Innovations: An Examination of Startups' Search Shift Toward Incumbents

Existing literature shows that corporate investment relationships play an important role in the development of startups. Although startups are relevant sources of innovations, especially those that radically depart from existing technologies, they often have limited access to resources. Corporate investment relationships are relevant to startups because they help them access resources of their corporate partners, especially those that are necessary for innovations to eventually achieve commercial success. This study examines the possibility that these relationships might also affect how startups search for innovations, producing greater alignment with the technologies of incumbents. Investigating this possibility is important because it can partly offset startups' distinctiveness in technological domains of search and accordingly undercut learning opportunities available to incumbents. We argue that, following the formation of a corporate investment relationship, considerations related to capabilities and incentives result in a startup shifting the search for innovations toward technological domains of its corporate partner. We also argue that the radicalness of a startup's innovations and the corporate partner's commercial success exacerbate this search shift. We test these propositions in the context of biotech startups. Our difference-in-differences analysis shows that startups forming corporate investment relationships increase search in the domains of their corporate partners relative to analogous change observed among matching counterfactual startups without such relationships. We discuss implications for understanding of the influences of interorganizational relationships on startups' technological trajectories and on incumbents' learning and adaptation.