Waiting for the Payday? The Market for Startups and the Timing of Entrepreneurial Exit

Abstract

We thank seminar participants at ABSTRACT Most technology startups are set up for exit through acquisition by large corporations. In choosing when to sell, startups face a tradeoff. Early acquisition reduces execution errors but later acquisition improves the likelihood of finding a better match since in the early market, there are fewer buyers because early acquisition requires costly absorptive capacity. Moreover, the buyer's decision to invest in absorptive capacity is related to the startup's decision about the timing of the exit sale. In this paper, we build a model to capture this complexity and the related tradeoffs. We find that the early market for startups is inefficiently thin if the timing of exit is a strategic choice, i.e. startups have to commit to whether to exit early or late. Too few startups are sold early, and too few buyers invest in absorptive capacity. Paradoxically, venture capital aggravates the inefficiency. However, if the timing of exit is a tactical choice, i.e. startups can choose to go late after observing the early offers, there are too many early acquisitions and too much investment in absorptive capacity by incumbents

Detecting Indicators for Startup Business Success: Sentiment Analysis Using Text Data Mining

“…Approximations can be made using special software for applying machine learning, artificial intelligence techniques, and hybrid models. Other options are available, such as algorithm training with Data Mining techniques, which are processes used to improve the probability of success of an algorithm with machine learning based on the accuracy of the results [27,28].…”

“…In the research by Liang [26], a semi-supervised dual recurrent neural network was used to perform Sentiment Analysis. This is similar to a traditional neural network and can be used to evaluate a data set over a long period of time [6,27]. This technique allows an effective and efficient Sentiment Analysis to be carried out [6].…”

Value capture in open innovation markets: the role of patent rights for innovation appropriation

“…For the purpose of this paper, this is especially important since we aim to investigate the role of patents for appropriation in different markets. For example, exit is a common appropriation strategy and business model for entrepreneurial ventures (Arora et al , 2021), while it is also an extreme form of equity sales, which in turn is a financing strategy. Similarly, a licensing strategy may be used for appropriating from previous innovation investments (e.g.…”

“…Chesbrough and Rosenbloom, 2002; Björkdahl, 2009; Osterwalder and Pigneur, 2010; Teece, 2010; Bucherer et al , 2012). An important consequence, central to our argument here, is that it is not only product markets that are of importance for enabling value capture but also other types of markets such as technology markets (Arora et al , 2001; Tietze, 2012), capital markets (Conti et al , 2013; Nylund et al , 2019) and markets for corporate control (Granstrand and Holgersson, 2013; Arora et al , 2021). For example, a technology-based startup may successfully commercialize and capture value from its innovation by patent sales, licensing or being acquired by a large established firm that continues to develop and commercialize the startup's innovations.…”