Beyond financing: Startup exploratory innovation: The role of VC experience

This paper investigates the role of venture capitalists’ experience on the proclivity to support exploratory innovation. Research has argued that prior experience enhances exploratory behavior and at the same time, prior experience creates a self-reinforcing nature of learning that reduces exploration. We systematically disentangle the experience black box along two dimensions - experience diversity and experience intensity, and examine factors that can potentially induce the VC to exert greater effort to leverage their experience and amplify the effect of experience diversity on exploratory innovation. Specifically, we hypothesize that VCs’ experience diversity enhances exploratory innovation, while experience intensity has no effect, and such effects are contingent on investor commitment and founders’ technological capability. We leverage a panel dataset of innovations in 790 venture capital backed human biotechnology start-ups from 1990 - 2016 augmented with a detailed information of venture capital investments in different technological domains. The analysis reveals that VCs’ diversity experience is the driving factor enhancing exploratory innovation and this effect is pronounced when investor commitment and founder technological capability is high.