2024
Working Paper
HBS Working Paper Series

Combining for Unconventionality: When Resource Constraints May Promote Innovation Capabilities

By: Harsh Ketkar and Maria Roche

Format:Print
| Language:English
| Pages:57

Abstract

The availability of financial resources significantly shapes firm innovation outcomes, especially for early-stage, innovation-focused technology startups. However, prior research has provided conflicting findings about this relationship: on the one hand, resource availability may boost innovation outcomes, but on the other hand, resource constraints may also do so. We hypothesize that the timing and size of resource availability in the early life stages of a startup may predict its propensity to generate more unique innovation compared to their competitors in terms of technological recombinations. Using a novel data set constructed from PitchBook and BuiltWith consisting of nearly 800,000 observations covering 11,853 firms founded and funded within 2010-2019, we find that early-stage startups that take longer to obtain first funding are more likely to use unique technological combinations to build their product after the funding event. However, startups that receive larger first funding experience a decline in uniqueness of their technology stack following the funding event. Thus, by focusing on timing and size of first funding, we offer a way to reconcile conflicting findings from prior literature.