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We seek to gain insight into the consequences of deglobalization on entrepreneurial investment by analyzing an instance of economic disintegration: the United Kingdom's exit from the European Union. Brexit is not only a unique empirical opportunity, a natural experiment, but it is economically important, since the UK was the heart of entrepreneurial investment in Europe. The theory of international trade, at a macroeconomic level, and the theories of economic agglomeration and entrepreneurial location, at a firm level, all predict that economic disintegration would lead to a lose-lose scenario for both the UK and the EU, with the UK losing more. However, since these theories were developed in a period of slow increasing globalization, we lack knowledge on the specific mechanisms by which these losses occur. We argue that one such mechanism is the different institutions that move or stay as a result of the economic disintegration—institutions that support industries in different ways and therefore exacerbate or mitigate the effect of economic disintegration on entrepreneurial investment. Difference-in-difference analyses of the entrepreneurial investment received by ~43,500 startups, and of the portfolio choices by ~27,000 investors and ~106,000 investor-quarters, in the UK, EU, and US (a counterfactual not affected by Brexit) show that the effects are highly heterogeneous by industry, with larger-magnitude effects on industries that are heavily regulated. Qualitative analysis from 45 interviews (conducted as Brexit's process was unfolding) suggests that the institutions that support these industries, differently affected by Brexit, explain such variation. [ABSTRACT FROM AUTHOR]

Breakthrough (high-impact) innovation often happens at startups, which need to attract funding in the early stages of these high-risk/high-reward projects. Extant research argues that investors lack appetite for the high risk; I argue that assessing the high reward is also challenging, since the invention could develop into innovation along multiple technological trajectories of different value. I develop the theory of value translation, a theoretical framework to analyze how the knowledge of investor and startup and the characteristics of the innovation affect the decision to fund the project. The investor and startup need to map and evaluate all possible trajectories to understand which has maximum value--loosely defined as financial, strategic, scientific, or societal. Mapping the technological trajectories, however, requires that one organization possess both knowledge about the science and technology, in order to understand which trajectories are feasible, and knowledge about the commercialization, in order to understand which trajectories are valuable. Startups tend to have more scientific/technological knowledge, and investors more commercialization knowledge. With incomplete knowledge, there is a dual bounded rationality problem: fewer trajectories are mapped, leading to a gap in valuation. This gap, or the value translation problem, is exacerbated for novel or complex innovations, which have greater knowledge requirements. Breakthrough innovation may indeed be underfunded and the theory points to a potential solution: organizations armed with knowledge of business and science can bridge the gap. This theory is inspired by fifteen interviews with life sciences investors and startups. [ABSTRACT FROM AUTHOR]

I seek to uncover the effect of venture capital (VC) on innovation by studying which VC firms and in what context foster the startup innovative process. I argue that specialist VC firms have the knowledge to help the startup innovate faster, but that this effect is moderated by context: the research environment of the country where the startup innovates is both a complement and a substitute to the effect. I find empirical support from a sample of 923 VC-backed biotech startups, from 26 countries, during a period of high growth of the biotech industry (1996-2006). The results suggest selection is not the main driver. Qualitative insights from interviews with 18 VC partners further shed light on the mechanisms underlying the effect of VC on innovation. [ABSTRACT FROM AUTHOR]

The literature agrees on the benefits of organizational status, but we know less about whether and when firms can enjoy status-related benefits in different international markets. Focusing on international expansion, we argue that the extent to which a firm can transfer status advantages from its home country to a host country depends in part on the relationships between the two countries. We build on the international management literature and hypothesize that two conditions influence how effectively organizational status transfers across countries: the interconnectedness of the home and host countries and the relative global position of the two countries. We test our hypotheses by examining whether cross-border venture capital (VC) firms with high home-country status contribute to the performance of their ventures in a study of 462 VC-backed biotechnology ventures in 25 countries between 1990 and 2006. Correcting for endogeneity, our results suggest that some level of interconnectedness between countries is required for status to transfer effectively. Also, the relative proximity of a VC firm's home country to the core of the world trade system appears to act as a substitute for firm status, reducing its impact on performance. [ABSTRACT FROM AUTHOR]

In contrast to the U.S., the innovative outcomes of international startups do not always benefit from venture capital (VC) investments. Solving this puzzle requires first understanding how VC firms affect innovation; after all, VC firms lack the complementary assets of corporate VC firms. Instead, I argue that they leverage their industry knowledge and management capabilities through an indirect mechanism: by helping the startup be better managed, the startup can devote more resources, time and attention to innovative processes, which translates into more innovative outcomes. To test this claim I focus on the regulatory uncertainty the startup faces, as a problem the VC firm can alleviate. Besides, regulatory uncertainty varies internationally and ranks high in the list of concerns of investors and startups. I examine the fit with two aspects of the VC firm global strategy: a) VC firm experience or specialization, the latter allowing the VC firm to get involved in the startup problem solving activities; and b) whether the VC has global expertise-- valuable in global industries--or local expertise--valuable to understand the regulatory uncertainty. I test these mechanisms on a sample of 414 international and VC-backed biotechnology startups, founded from 1994 to 2004 (and observed through 2011) across 24 foreign countries, and controlling for the matching between VC firms and startups. I find evidence that VC local specialization fosters startup patents and publications when there is regulatory uncertainty, which supports the idea that VC firms foster innovative outcomes indirectly through mitigating the costs of context uncertainty. [ABSTRACT FROM AUTHOR]

Lack of funding is one of the most important problems entrepreneurial ventures, and one of the major impediments to growth. Strategy theory does not help address this growth problem, for it departs from the assumption that there is capital to be invested. Entrepreneurship scholarship has found much empirical evidence about how funding is allocated, but it lacks a conceptual framework that unifies the knowledge. There is hence a need for a theory that describes not only which ventures are valuable and therefore should be funded, but also which ventures are more likely to be funded by the investors. The difference between these two values, or value translation gap, is analyzed for biases. I show that under a set of realistic assumptions, complex innovation is systematically underfunded. Hence at the core of growth is the type of innovation. The model, however, points to strategies in which to lower the value translation gap. This theory contributes to entrepreneurship scholarship by providing a simplified framework consistent with empirical evidence, and to strategy by expanding the theory of growth of the firm when capital is scarce. [ABSTRACT FROM AUTHOR]

What are the boundary conditions for the transferability of firm status and experience advantages to host countries in international expansion? Building on network, learning, and institutional theories, we identify and empirically test the conditions under which firms with high status or high experience can benefit from these resources in international markets. We examine this question by studying the international investments of venture capital (VC) firms in biotechnology ventures in 20 different countries founded between 1994 and 2010, and their likelihood of reaching a successful liquidation (exit) event. We find that when the home country of the foreign VC has a higher standing than the host country, the status of the foreign VC is positively associated with the likelihood of exit. Knowledge distance between the countries reduces the impact of prior experience on the likelihood of exit, and regulatory distance reduces the impact of home-country status on the likelihood of exit. These results distinguish between status and experience as sources of advantage in international markets, highlight the importance of institutional context in examining firm-specific advantages, and delineate the conditions under which status and experience are transferable internationally. [ABSTRACT FROM AUTHOR]

Globalization spurs the debate about the importance of performance effects of firm versus environment heterogeneity. Since mainstream strategy paradigms focus on how firm heterogeneity affects performance, the heterogeneity of the external environment is often overlooked. Yet the external environment affects organizational choices and outcomes, as shown by institutional theory. This paper contextualizes this debate in the institution of venture capital, which has become globally widespread in the last two decades, to further understand the extent to which the external environment moderates the relationship between heterogeneous venture capitalist (VC) experience and performance. I posit that venture capital as an institution serves to smooth some of the differences across national legal regimes, but not all. I ask whether the positive effects of VCs on the innovative performance of U.S. startups are present abroad, and explore the extent to which these effects depend on the startup's legal environment, which is the external environment where the startup's innovative processes unfold. I focus on two distinct facets of the startup's legal environment--regulatory quality and rule of law--and I leverage the context, which provides two innovative outcomes--scientific publication and patents--that are affected by the legal environment in different ways. I test the hypotheses on a sample of 333 VC-backed biotechnology startups; the results support the predictions and are robust to endogeneity. This paper provides insight into the mechanisms for the innovative performance consequences of VC investment and underscores the need to analyze simultaneously the performance effects of (internal) resources and (external) environment. [ABSTRACT FROM AUTHOR]

There is empirical evidence that Venture capital (VC) firms foster innovation in the U.S. As a result, many foreign governments have provided incentives to VC investments in the hope that this will translate into venture innovation. Yet, we know less about the effect of VCs on innovation abroad. Furthermore, the presence of weaker regulatory and enforcement systems may create obstacles for such effect, and these regulatory issues are among the top concerns of VCs globally. This paper argues that experienced VCs may overcome these legal hurdles, but where the experience was acquired --in the country of interest or abroad-- is important, and so is whether the problems derive from weak business regulation, or from weak intellectual property enforcement. Using a sample of VC-backed biotech ventures, I find that VC experience nurtures venture innovation of U.S. ventures, hence replicating the findings of previous research. However, an analysis of this result in a sample of 329 foreign ventures from 21 countries uncovers the subtleties of this effect. I find that VC local experience compensates for a weaker private sector regulation. [ABSTRACT FROM AUTHOR]

This paper investigates the consequences of Corporate Venture Capital (CVC) investments: Do strategically-orientated CVC investors affect startups' research productivity? Do CVC-backed startups overemphasize basic over applied research? We study these questions using a longitudinal sample of 591 U.S. biotechnology ventures founded 1990-2003. We find that CVCs nurture innovative firms, providing access to the corporation's resources and capabilities, and hence increasing both their applied-research (patents) and basic-research (publications) outcomes. However, when CVC and startup compete in the same industry there is a risk of expropriation of the technology, translating in a greater increase in basic-research but not in applied-research. [ABSTRACT FROM AUTHOR]