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Paper Type
Complete
Description
While tech giants have become important external equity financing sources, it remains unclear whether IT-startups should take investments from tech giants. In this study we empirically examine how taking investments from tech giants influences future funding of IT-startups. Our results indicate that taking investments from tech giants significantly reduces the amount of funding IT-startups could obtain in the following rounds. Additionally, we find that social ties between IT-startups’ regions and locations with substantial capital will attenuate such negative impact of taking investments from tech giants. We further explore the mechanisms. Results suggest that when tech giants make investments in IT-startups, they predominate the new technologies by applying for more patents in the relevant fields and crowd out new investors. We contribute to the literature in IS by examining how investments from tech giants may influence the growth of IT-startups and how social ties may play a role in this interaction.
Paper Number
1728
Recommended Citation
Huang, Linmei; Wang, Shuting (Ada); and Lang, Karl, "Take It or Not? Impact of Taking Investments from Tech Giants on IT Startups’ Future Funding" (2023). AMCIS 2023 Proceedings. 13.
https://aisel.aisnet.org/amcis2023/sig_dite/sig_dite/13
Take It or Not? Impact of Taking Investments from Tech Giants on IT Startups’ Future Funding
While tech giants have become important external equity financing sources, it remains unclear whether IT-startups should take investments from tech giants. In this study we empirically examine how taking investments from tech giants influences future funding of IT-startups. Our results indicate that taking investments from tech giants significantly reduces the amount of funding IT-startups could obtain in the following rounds. Additionally, we find that social ties between IT-startups’ regions and locations with substantial capital will attenuate such negative impact of taking investments from tech giants. We further explore the mechanisms. Results suggest that when tech giants make investments in IT-startups, they predominate the new technologies by applying for more patents in the relevant fields and crowd out new investors. We contribute to the literature in IS by examining how investments from tech giants may influence the growth of IT-startups and how social ties may play a role in this interaction.
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