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Caught In The Middle: The Bias Against Startup Innovation With Technical And Commercial Challenges

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  • Ashish Arora
  • Andrea Fosfuri
  • Thomas Roende

Abstract

Startups in IT and life sciences appear to be flourishing. However, startups in other sectors, such as new materials, automation, and eco-innovations, which are often called "deep tech", seem to struggle. We argue that innovations with both technical and commercial challenges, typical of deep tech innovations, are especially disadvantaged in a startup-based innovation system. We develop an analytical model where startups are more efficient at solving technical challenges and incumbents are more efficient at solving commercial challenges. We find that the startup-based system works better for "specialized" innovations, where only one type of challenges is significant. Startups which face both technical and commercial challenges are disadvantaged because they capture a smaller fraction of the value they create. We discuss the implications for various public policies that have been proposed to encourage deep-tech.

Suggested Citation

  • Ashish Arora & Andrea Fosfuri & Thomas Roende, 2022. "Caught In The Middle: The Bias Against Startup Innovation With Technical And Commercial Challenges," NBER Working Papers 29654, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:29654
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    Cited by:

    1. Silvia Dalla Fontana & Ramana Nanda, 2023. "Innovating to Net Zero: Can Venture Capital and Start-Ups Play a Meaningful Role?," Entrepreneurship and Innovation Policy and the Economy, University of Chicago Press, vol. 2(1), pages 79-105.
    2. Fini, Riccardo & Perkmann, Markus & Kenney, Martin & Maki, Kanetaka M., 2023. "Are public subsidies effective for university spinoffs? Evidence from SBIR awards in the University of California system," Research Policy, Elsevier, vol. 52(1).
    3. Dumont, Michel, 2022. "Public support to business research and development in Belgium: fourth evaluation," MPRA Paper 115418, University Library of Munich, Germany.

    More about this item

    JEL classification:

    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation

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