Does VC backing affect brand strategy in technology ventures?

• Author: Enrico Forti,Chunxiang Zhang,Federico Munari
• Published date: 01 June 2020
• DOI: http://doi.org/10.1002/sej.1318
• Date: 01 June 2020

RESEARCH ARTICLE

Does VC backing affect brand strategy in

technology ventures?

Enrico Forti

1

| Federico Munari

2

| Chunxiang Zhang

3

1

UCL School of Management, University

College London, London, UK

2

Department of Management, University of

Bologna, Bologna, Italy

3

School of Entrepreneurship Education,

Guangdong University of Finance and

Economics, Guangzhou, China

Correspondence

Enrico Forti, UCL School of Management,

University College London, London, UK.

Email: e.forti@ucl.ac.uk

Federico Munari, Department of

Management, University of Bologna, Bologna,

Italy.

Email: federico.munari@unibo.it

Chunxiang Zhang, School of Entrepreneurship

Education, Guangdong University of Finance

and Economics, Guangzhou, China.

Email: 20161003@gdufe.edu.cn

Funding information

Youth Project of Humanities and Social

Sciences, Department of Social Science,

Ministry of Education of China, Grant/Award

Number: 17YJC630207

Abstract

Research Summary: The resource-based view of the firm char-

acterizes brands as important resources for firm growth and

competitive advantage. Existing studies offer theory and evi-

dence that venture capital (VC) backing enhances the growth of

new technology ventures along different dimensions. It is not

clear, however, whether and how VC backing affects the devel-

opment of brand assets. In a study of VC-backed and non-VC-

backed nanotechnology ventures in the United Kingdom, we

find a positive association between VC backing and the develop-

ment of brand assets. We also find that VC-backed technology

ventures tend to create brand assets with a wider scope, which

can be deployed across multiple different product-markets.

Managerial Summary: Brand strategy is critical for the suc-

cess of entrepreneurial firms and can be challenging for firms

operating in nascent industries that aim to commercialize inno-

vations stemming from general purpose technologies. Such

firms face dilemmas on whether to diversify or not into differ-

ent product-markets, how many brand assets to develop, and

whether to leverage a brand asset across multiple product cat-

egories. In a study of nanotechnology ventures, we find that

VC-backing can affect the development of brand strategy: VC-

backed ventures tend to develop more brand assets compared

with non-VC-backed ventures and tend to create brand assets

with a wider scope, which can be deployed across multiple dif-

ferent product-markets.

KEYWORDS

brands, new venture strategies, resource-based view, technology

ventures, venture capital

Received: 26 January 2016 Revised: 23 February 2019 Accepted: 27 February 2019 Published on: 7 June 2019

DOI: 10.1002/sej.1318

© 2019 Strategic Management Society

Strategic Entrepreneurship Journal. 2020;14:265–286. wileyonlinelibrary.com/journal/sej 265

1|INTRODUCTION

Brands are characterized by the resource-based view of the firm as key resources for firm growth and competitive

advantage (e.g., Levinthal & Wu, 2010; Wernerfelt, 1984).

Existing theory and evidence document strong links between venture capital (VC) funding and different dimen-

sions of entrepreneurial growth, with particular emphasis on innovation (e.g., Fitza, Matusik, & Mosakowski, 2009;

Hellmann & Puri, 2000; Hsu, 2006; Lahr & Mina, 2016). Yet, there is a limited understanding on whether and how

VC backing affects the brand strategies of technology ventures—that is, how firms develop and deploy brand assets

1

for the commercialization of products and services.

Understanding the link between VC backing and brand strategy is important to start-up entrepreneurs and man-

agers at VC firms alike. Entrepreneurs often establish technology ventures to develop and bring to market new prod-

ucts and services stemming from scientific breakthroughs, facing considerable technological and market uncertainty

(Clarysse, Bruneel, & Wright, 2011). New ventures spend substantial resources to convert promising technologies

into commercial applications and founders have often science/technological backgrounds with competences mainly

related to R&D rather than marketing and commercialization (Brush, Greene, & Hart, 2001; Ott, Eisenhardt, & Bing-

ham, 2017; Rindova, Yeow, Martins, & Faraj, 2012).

Research shows that VC backing is a key transition in the lifecycle of technology ventures (Lahr & Mina, 2016)

while the media often depicts it as a watershed event that will impact both the quantity and direction of R&D and

marketing activities (e.g., TechCrunch, 2012). Empirical evidence on the impacts of VCs on their portfolio companies

shows that early-stage ventures that secure VC backing receive valuable monetary and non-monetary support

(Hellmann & Puri, 2000, 2002). VC backing has been shown to enhance ventures' innovative productivity (Croce,

Martí, & Murtinu, 2013; Dushnitsky & Lenox, 2005; Engel & Keilbach, 2007; Lahr & Mina, 2016), accelerate scaling

up and resource acquisition (Davila, Foster, & Gupta, 2003), foster the development of cooperative technology com-

mercialization strategies (Hsu, 2006), and increase financial performance (Fitza et al., 2009; Sørensen, 2007). It is not

clear however to what extent VC backing impacts brand strategy.

Brands are important resources, and managers have been shown to spend a considerable portion of their budgets

to build brand equity (Madden, Fehle, & Fournier, 2006). Developing brand assets can impact in a number of differ-

ent ways the prospects of new technology ventures, from strengthening the effectiveness of commercialization and

developing customer loyalty (Krasnikov, Mishra, & Orozco, 2009), to attracting new talent and investors (Vomberg,

Homburg, & Bornemann, 2014; Wry, Lounsbury, & Jennings, 2014), and enabling options for diversification

(Sakhartov & Folta, 2014).

Importantly, brand assets are intimately linked with trademarks—the legal mechanisms that protect the distinc-

tive signs which identify products or services of a particular organization (Krasnikov et al., 2009). As trademarks can

be renewed indefinitely, brand assets provide technology ventures with rare scale-free resources that can extend

and complement the protection offered by patents (Levinthal & Wu, 2010; Mendonça, Pereira, & Godinho, 2004;

Rujas, 1999) and other intellectual property rights (IPRs). Brand assets can be therefore an important source of com-

petitive advantage (Morgan, Vorhies, & Mason, 2009).

New firms sustain considerable efforts to build brand assets, and research has convincingly shown the reliability

of trademarks as a proxy to capture the outcomes of these efforts (Block, De Vries, Schumann, & Sandner, 2014;

Krasnikov et al., 2009). An analysis of the antecedents of brand activities in new technology ventures is however

almost entirely absent in the entrepreneurship literature. In particular, despite evidence on the importance of down-

stream activities to convert promising innovations into sought-after products (Chandy, Hopstaken, Narasimhan, &

Prabhu, 2006; Sarangee & Echambadi, 2014), no study we are aware of has assessed to what extent VC backing

affects the brand strategy of technology ventures. This is a critical omission because there is strong evidence that

new ventures that develop brand assets are more likely to achieve successful growth outcomes (Guzman &

Stern, 2015).

266 FORTI ET AL.