Abstract

We contribute to entrepreneurship research through a 3.5 year follow-up of young biotechnology ventures that have been established to develop and commercialize science based innovations. We want to understand why some of these promising ventures end up as the living dead as a part of an acquired or a merged entity. Previous literature on mergers and acquisitions that considers the phenomenon from the perspective of an entrepreneurial firm -- for which M&A can be a lucrative exit strategy – is scarce. Since successful new business opportunities develop based on market knowledge as well as technology knowledge (Shane, 2000), we hypothesize that those new firms that have high levels of market and technological knowledge end up in M&A more often than firms with lower levels of the knowledge based resources. We also hypothesize that for surviving firms, both technological innovativeness and market orientation contribute to the firm’s ability to raise capital and to license out technologies. Data came from CEO- entrepreneurs in 85 medical biotechnology firms located in the United States and in Scandinavia. Initial data collection took place through in-person interviews in 2004, and data for dependent variables were collected in the summer of 2007. Our results show that companies that exhibit higher levels of market knowledge end up merging or being acquired more often than less market oriented new firms. Among ongoing businesses, both market knowledge and technological knowledge contribute to capital investments in the firm and technology licensing deals. Performance consequences of market orientation in the existing literature are limited to financial performance outcomes, often established in a large firm context. We contribute to the literature by demonstrating market orientation’s contribution to young firm M&A as well as other outcomes in the context of highly technology intensive young ventures.

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