When do investors prefer copycats? Conditions influencing the evaluation of innovative and imitative ventures

Abstract

Research Summary This article investigates the conditions under which investors preferentially evaluate fast follower business model copycats (BMCs)—less novel, imitative ventures—over novel ventures. Employing a conjoint experiment, we find that venture investors prefer fast follower BMCs when the venture team has major capability advantages in exploitation (compared to exploration). Further, we find that investors' experience reduces their preference for fast follower BMCs when the team's capability advantage is in exploitation, and reduces their preference for novel ventures when the team is strong in exploration. These findings provide important theoretical and managerial implications. Managerial Summary Business model copycats represent a popular phenomenon in the global market. Fast follower BMCs are especially influential as many of them received millions of dollars of investment, and achieved billions of dollars in evaluations, both resulting in worldwide recognition. But although fast follower BMCs have the potential to conquer any market, they are not always highly valued by investors when initiating their businesses. We investigate when this is the case and find that team exploration–exploitation capabilities influence investors' evaluation preference toward novel ventures and fast follower BMCs. If entrepreneurs are skilled in exploitation, creating a fast follower BMC venture might be a great pitch to secure investment. Yet, if entrepreneurs are mostly competitive in exploration, creating fast follower BMCs does not attract investment easily.

Does an Imitation Strategy Promote Long-Term Firm Growth in a Dynamic Environment? A Meta-Analysis

“…As first, mover companies are able to obtain high-quality market information, a comfortable competitive position in the market and advanced levels of technology, imitating enterprises can follow the strategies of these enterprises by observing and learning from these firms, which reducing, in turn, market uncertainty ( Semadeni and Anderson, 2010 ; Giachetti and Torrisi, 2018 ). As a result, a large number of firms prefers to apply an imitation strategy although they may sacrifice novelty for less market and technology uncertainty ( Fu and Tietz, 2019 ). This result is contrary to the results of studies indicating that an imitation strategy may hinder the sustainable growth of firms over the long term in a highly competitive market as enterprises need novelty to stay ahead of competitors in these markets ( Semadeni and Anderson, 2010 ; Moon and Acquaah, 2020 ).…”

“…In contrast, latecomer firms had a lower failure rate (8%) and a larger average market share (28%). Fu and Tietz (2019) further observed that imitative latecomer firms tended to have easier access to investment since these latecomers adopted an imitation strategy that faces less market and technological uncertainty compared to market pioneers. In addition, an imitation strategy often allows firms to better attract consumers and obtain considerable economic benefits because they can produce products at lower costs and sell them at lower prices ( Sajeva, 2013 ).…”

“…However, scholarly knowledge has been limited with respect to the extent to which an imitation strategy can promote the sustainability of firm growth in dynamic environments. On the one hand, the imitation strategy is likely to boost firm growth ( Fu and Tietz, 2019 ). For example, a study by Golder and Tellis (1993) involving 50 different categories of products showed that pioneering firms had an average market share of only 10% and a failure rate of 47% over the long term.…”

The Promise of New Ventures’ Growth Ambitions in Early-Stage Funding: On the Crossroads between Cheap Talk and Credible Signals

“…Dependent Variable. To match Study 1 and previous conjoint studies (Fu & Tietz, 2019;Murnieks et al, 2011), we use two dependent variables, based on 7-point Likert scales, to examine funding performance. The variables are the funding amount, measured as the likely amount that the respondent would invest (lowest to highest possible amount), and investment likelihood, measured as the probability that the respondent would invest in the proposed venture (very low to very high).…”

“…Control Variables. We captured several relevant control variables in a post hoc survey (Fu & Tietz, 2019;Murnieks et al, 2011;Van Balen et al, 2019). Respondents indicated their gender, age group, education (five options, up to postgraduate), entrepreneurial background (having founded a company before), investment experience (very low to very high), and willingness to take risks (not at all to very willing).…”