High-tech Startups’ Reputation, The Access To Venture Capital And Technological Innovation

Compared with traditional companies, high-tech companies are usually related to higher risks and higher returns. Compared with established large companies, high-tech startups often face a financial problem and are lack of management experiences. Venture capital can be a way of solving these problems. This dissertation focuses on two streams of venture capital research:the factors influencing high-tech startups’access to venture capital and the influence of venture capital on their technological innovation.Even though many researchers have studied the criteria used by venture capitalists to evaluate high-tech startups, only a few scholars investigate the influence of startup reputation on their access to venture capital. As far as the relationship between startup reputation and its stakeholders is concerned, the reputation literature are more focused on the relationship between startup reputation and consumers, whereas the relationship between startup reputation and investors is under investigated. In the last two years, some scholars began to study the relationship between corporate reputation and investors. However, these a few studies are not enough to well understand their relationships. More researches on the relationship between corporate reputation and investors are needed. There is a serious information asymmetry problem between venture capitalists and high-tech startups:on the one hand, before investment, it’s difficult for venture capitalists to evaluate the true value of startups because of the high market uncertainty; on the other hand, after investment, it is difficult for the venture capitalists to monitor the real behaviors and intentions of entrepreneurs. In this situation, startup reputation, which reflects a startup’s potential value and its credit, can be used as a signal telling the venture capitalists firstly, the startup is worth to be invested, and secondly, the startup will not take opportunistic behaviors in the future. The reason why startup reputation can be such a signal is that it has some unique features: first, it is usually associated with a firm’s historical performance which can reflect its real value; second, positive reputation is established through long-term efforts, but it can be destroyed in a very short time. Therefore, firms usually cherish very much their established positive reputation and will not take opportunistic behaviors which may hurt their future reputation.This dissertation distinguishes startup reputation into three dimensions:generalized visibility, generalized favorability and attribute-specific reputation, and then uses Cox proportional hazard model to investigate the effect of these three dimensions on the time when startups receive venture capital. Here, generalized visibility is proxied by the number of news a startup was reported by the media and generalized favorability is proxied by the coefficient of favorableness proposed by Deephouse in2000. As for the attribute-specific reputation, since most researches emphasize the role of management team on startups’access of to venture capital, this dissertation focuses on the management team heterogeneity.This dissertation chooses the UK micro and nanotechnology startups as our research setting. That’s because micro and nanotechnology is one of the main leading technologies in the21st century, which may change our future daily life, and the UK micro and nanotechnology is in a good position in the world. The dataset used in this dissertation is a an unbalanced panel data and is collected from the "Industrial Map of UK MNT" and other databases, including "LexisNexis","FAME","Company Director Check","UK Intellectual Property Office","Organization for Harmonization in the Internal Market", and so on.The empirical results indicate that the generalized reputation (generalized visibility and generalized favorability) could significantly shorten the time needed to receive venture capital. Compared with generalized visibility, the influence of generalized favorability is much higher, indicating venture capitalists not only paying attention to startups’media exposure level, but also the media’s attitude, that is, whether the report is positive or negative. Moreover, the higher the level of management team occupational background heterogeneity, the shorter the time needed to receive venture capital. Thus, startup reputation is a significant factor influencing its access to venture capital.After investment, venture capitalists provide not only financial support, but also some additional services, such as management consulting, helping startups find technical opportunities with super market potential, and so on. Moreover, the access to venture capital is beneficial for firms to obtain other strategic resources, such as human resources, additional financial resources, technical resources, market resources, etc. Many studies have proved the promotion effect of venture capital on firms’technological innovation development, and most of them use patent data to measure technological innovation. Patents can only reflect the upstream part of innovation, that is, the generation of new inventions. However, they cannot depict the downstream part of innovation, that is, the commercialization of new inventions. New inventions can bring economic returns only when they are commercialized. In fact, many patents never convert to commercialized products. Therefore, it is meaningful to investigate the effect of venture capital on its investee companies’commercialization of new inventions. The application of new trademarks is usually related with new products/services. Trademarks could depict the downstream side of innovation, the commercialization of inventions.In order to enrich researchers’knowledge about the effect of venture capital on innovation, this dissertation studies the effect of venture capital on startups’trademarking activities. Based on the related literature, this dissertation proposes two hypotheses about the effect of venture capital on the likelihood of filing trademarks and the market scope the trademarks protect. The empirical results of the Logit model analysis and the robustness check of instrumental variable analysis consistently show that the access to venture capital can significantly increase the likelihood of filing trademarks; the results of the negative binomial distribution model and the possion distribution model consistently indicate that the access to venture capital can also increase the market scope the trademarks protect. The results also indicate that venture capital is one important factor influencing startups’filing trademarks. Therefore, to foster firms’trademarking awareness, governments should encourage the development of venture capital industry.The contribution of this dissertation can be seen as follows:(1) we investigate high-tech startups’reputation, while the literature studying corporate reputation mainly investigate established large firms’ reputation. Our empirical results confirm the important influence of startups’reputation on their access to venture capital.(2) we study the effect of startup reputation on its access to venture capital funding and our regression results have proved the positive effect. It is about the relationship between reputation and venture capitalists, and it expands previous studies which mainly focus on the relationship between corporate reputation and consumers.(3) we distinguish startup reputation into three dimensions and prove that these three dimensions have different influences on its access to venture capital, while previous studies mainly discuss only one dimension of reputation.(4) our results indicate that startup management team professional background heterogeneity has a significant influence on its access to venture capital. It contributes to the literature in which scholars mainly investigate the influence of corporate management team heterogeneity on its performance outcomes.(5) we contribute to the trademarking literature by investigating high-tech startups’trademarking activities, which previous studies usually focus their attention on established large enterprises. Our regression results show that the receipt of venture capital could statistically promote startups’likelihood of filing trademarks and widen the market scope the trademarks protect.(6) our results also indicate financial resources, especially venture capital, is another factor influencing corporates’trademarking activities, besides the factors discussed in the literature, such as industry characteristics, corporate characteristics, and so on.