Author(s) :

Kanishk Gupta.

Volume/Issue :

Abstract :

Through institutional theory, this review examines how the institutional logics of funding partners shape innovation, strategy and general outcomes in young firms, utilizing case studies in the AI industry. It investigates how young firms should consider the choice of their resource providers, specifically through factors that impact those choices besides the provision of capital. Clear trade-offs emerge through comparative analysis of the impacts of the institutional logics of 3 types of funding partners, namely venture capital, corporate and hybrids. Corporate logic can create substantial value in providing critical specialized complements (among other resources that would not have been accessible through alternative resource providers), specifically when uncertainty is high due to the vast amount of resources corporate partners possess, however they may restrict access to alternative partners and markets and tend to steer the young firm to align with their own strategic goals. Professional (venture capital) logic emphasizes discipline and pacing in addition to commercial innovation and is thus likely to aid these. However, young firms with ties to venture capital, carry the risk of information leakage to competitors and are unlikely to experience significant improvements in technical innovation. Hybrid logics may combine the commercialization benefits and take advantage of the resources of corporate partners while benefiting from the commercial discipline instilled by the professional logic of their venture capital partners. Professional logic is likely to aid mitigate the drawbacks of corporate logics, however, may lead to increased coordination costs and still carries the exposure that accompanies professional logic.