Working Paper: CEPR ID: DP16862
Authors: Thomas Rønde; Ashish Arora; Andrea Fosfuri
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.
Keywords: deep tech; startup innovation; acquisition; markets for technology
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Technical challenges (O33) | Commercial challenges (L14) |
| Technical challenges (O33) | Startups' ability to capture value (O36) |
| Commercial challenges (L14) | Startups' ability to capture value (O36) |
| Technical challenges + Commercial challenges (O36) | Startups' ability to capture value (O36) |
| Technical challenges + Commercial challenges (O36) | Disadvantage in negotiations with incumbents (D43) |
| Inefficient division of innovative labor (D26) | Market performance of startups (M13) |