When Difference Hurts: Technology Space Activity and Failure

This paper investigates failure of startups due to their accumulation of intellectual property rights (IPR) in the context of the wireless telecommunication industry, here framed as their technology space - a space that we constructed through shared technology. Obtaining intellectual property rights forms an important signal for startup viability but only to a limited degree, compelling us to posit a U shape relationship between failure rate and IPR flow. The location of startups in the technology space, and the associated signals that come with that location presents powerful information regarding their failure rates. Disclosing intellectual properties erodes the benefits of secrecy and innovative lead time as deference (as proxied by patent citations) by peer to new firms increases their hazard of failure due potential competition and harmful spillover effects - particularly if the sector manifests a weak appropriability regime. Technology concentration of the deference is also found to be harmful; however the interaction of the two is positive. This leads us to infer that startups with specific and focused technology acknowledged many other firms or those with general but deferred to by few others have better possibility of stemming the rot.