Rapidly Evolving Technologies and Startup Exits

Donald E. Bowen (), Laurent Frésard () and Gerard Hoberg ()
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Donald E. Bowen: Department of Finance, College of Business, Lehigh University, Bethlehem, Pennsylvania 18015
Laurent Frésard: Faculty of Economics and Swiss Finance Institute (SFI), Universita della Svizzera Italiana, Lugano TI 6904, Switzerland
Gerard Hoberg: Department of Finance and Business Economics, Marshall School of Business, University of Southern California, Los Angeles, California 90089

Management Science, 2023, vol. 69, issue 2, 940-967

Abstract: This paper examines startups’ positioning within technological cycles. We use patent text to measure whether innovation pertains to a technological area that is rapidly evolving or stable. We show that innovation in rapidly evolving areas (i.e., early in the cycle) substitute for existing technologies, whereas innovation in stable areas (i.e., later in the cycle) complement them. Our new measure is distinct from existing characterizations of innovation and is economically important. We find that startups in rapidly evolving areas tend to exit via initial public offering, thus remaining independent, consistent with technological substitution. In contrast, startups in stable areas tend to sell out, consistent with technological complementarity and synergies.

Keywords: patent text; technology waves; innovation; technology substitution; venture capital; startup exit; initial public offerings (IPOs); acquisitions; sell-outs (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (1)

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