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  • October 2015
  • Article
  • Academy of Management Journal

Exposed: Venture Capital, Competitor Ties, and Entrepreneurial Innovation

By: Emily Cox Pahnke, Rory McDonald, Dan Wang and Benjamin Hallen
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Abstract

This paper 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

Competition; Intellectual Property; Entrepreneurship; Innovation and Invention; Medical Devices and Supplies Industry

Citation

Pahnke, Emily Cox, Rory McDonald, Dan Wang, and Benjamin Hallen. "Exposed: Venture Capital, Competitor Ties, and Entrepreneurial Innovation." Academy of Management Journal 58, no. 5 (October 2015): 1334–1360.
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About The Author

Rory M. McDonald

Technology and Operations Management
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More from the Authors
  • Managing Innovation at Atrium Health: 'Never Let a Good Crisis Go To Waste' (Abridged) By: Derek van Bever, Rory McDonald and Anibha Singh
  • Shaping Nascent Industries: Innovation Strategy and Regulatory Uncertainty in Personal Genomics By: Cheng Gao and Rory McDonald
  • How Leaders with Divergent Visions Generate Novel Strategy: Navigating the Paradox of Preservation and Modernization in Swiss Watchmaking By: Ryan Raffaelli, Rich DeJordy and Rory M. McDonald
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