Are technology entrepreneurs optimizing their exit plan?

Research Paper Title:

“Sold, not bought: Market orientation and technology as drivers of acquisitions of private biotechnology ventures”

Authors:

Maija Renko (Depaul University)
Helena Yli-Renko (University of Southern California)
Lien Denoo (Tilburg University)

Background:

Many technology entrepreneurs establish their ventures with a specific exit goal in mind: they hope to achieve liquidity by selling their firm to a corporate buyer. The results of this study offer concrete guidance on how entrepreneurs can develop their organizations to make them appealing targets for acquirers. The most important implication of this study is that technology entrepreneurs wishing to achieve an acquisition exit should develop their organizations to be highly market-oriented as early as possible, as market orientation is most valuable when product development is at its earliest stages. Market orientation is not something that can be put off in order to focus resources solely on product development in the preclinical stages, as is the natural inclination of many technology entrepreneurs. Technology ventures should, from the very start, collect research-based evidence on their current or potential customers, end markets, and competitors, integrate customers' and end users' needs into their product development, understand their competition, and develop internal communication channels within the firm.

Methodology:

Sample: Small and young biotechnology ventures
Sample Size: 84
Analytical Approach: multinomial logistic regression and Fuzzy-set Qualitative Comparative Analysis

Hypothesis:

• The higher the level of market orientation of a technology venture, the greater the likelihood that the venture will be acquired. (supported)

• The later the stage of product development, the less positive is the relationship between the level of market orientation and the likelihood that the venture will be acquired. (supported)

• The greater the number of patents, the more positive is the relationship between the level of market orientation and the likelihood that the venture will be acquired. (not supported)

Results:

1. A target venture's market orientation has a significant, direct and positive effect on acquisition likelihood.

2. A target venture's market orientation has a substitutive relationship with product development stage in affecting acquisition likelihood, that is, market orientation can compensate for an early technological development stage.

3. The researchers found tentative support from their fsQCA analyses for a potential amplifying effect between target venture's market orientation and patents in affecting acquisition likelihood.

Conclusion:

Consistent with organizational path dependence and the imprinting effects of founding conditions and early entrepreneurial decisions, this study of private biotechnology firms suggests that a venture's early market orientation and technology have long-term consequences for its acquisition likelihood.