R&D activity has long been considered an important internal organizational driver of innovation in new ventures, improving their growth and performance. Yet, research has shown that severe adversities in the external environment at the macro level (economy downturns, restrictive credit or lending conditions) can substantively hinder innovative activities of new ventures. This is unfortunate, given that research has shown that only stable investments in R&D allow the firms to develop and sustain capabilities underpinning their competitive advantage. We posit that any disruption in the flow of funds to R&D can have a detrimental effect on knowledge creation and implementation in the form of new commercial outputs from the firm. And this in turn has long- term negative consequences for revenue growth, market position, and also the ability to retain and attract the best people to work in R&D.

In the proposed study we demonstrate that maintaining (or even increasing) the R&D intensity during times of economic crisis can be a bold and highly effective way to weather economic and market adversity.