Venture Capital's Role in the Formation of a New Technological Ecosystem: Evidence from the Cloud

66 Pages Posted: 29 Jan 2018

See all articles by Dan Breznitz

Dan Breznitz

University of Toronto - Munk School of Global Affairs and Public Policy

Chris Forman

Cornell University - Dyson School of Applied Economics and Management; Georgia Institute of Technology - Scheller College of Business

Wen Wen

University of Texas at Austin - McCombs School of Business

Date Written: 2018

Abstract

The diffusion of new information technology (IT) requires the development of an ecosystem of hardware and software producers, users, and other firms. It is widely believed that venture capitalists (VCs) can play a role in the development of such ecosystems. However, empirical research to elaborate on these points is lacking. Focusing on the recent rapid rise of one platform, cloud computing, we assemble a unique dataset to look at the period just before the cloud’s wide acceptance. We find evidence of complementarity between VC financing and the introduction of new products offered over the cloud. Moreover, the complementarity effects are significantly stronger for firms backed by VCs that had rich experience in the IT industry and are significantly weaker for firms that had prior experience developing traditional client/server products. These results provide evidence that supports a role for VC financing in the creation of new technological ecosystems.

Keywords: cloud computing, complementarity, platform ecosystem, product introductions, venture capital

JEL Classification: G24, L86, O32

Suggested Citation

Breznitz, Dan and Forman, Chris and Wen, Wen, Venture Capital's Role in the Formation of a New Technological Ecosystem: Evidence from the Cloud (2018). Forthcoming MIS Quarterly, Georgia Tech Scheller College of Business Research Paper No. 18-14, Available at SSRN: https://ssrn.com/abstract=3106139

Dan Breznitz

University of Toronto - Munk School of Global Affairs and Public Policy ( email )

Toronto, Ontario
Canada

Chris Forman

Cornell University - Dyson School of Applied Economics and Management ( email )

Ithaca, NY
United States

Georgia Institute of Technology - Scheller College of Business ( email )

800 West Peachtree St.
Atlanta, GA 30308
United States

Wen Wen (Contact Author)

University of Texas at Austin - McCombs School of Business ( email )

2110 Speedway Stop B6500
Austin, TX 78712
United States

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