Survive, But Not Thrive? The Constraining Influence of Government Funding on Technology Start-Ups

Abstract

This paper examines the potential constraining effects of funding from mission-oriented (e.g., NASA, DoD, DHS) public-funding agencies on the future growth of technology-based startups. Prior research on innovative, small-business government funding programs illuminates the beneficial nature of such public resources in overcoming resource limitations in launching new technology ventures. However, this research is based mainly on empirical analysis of non-constraining, grant-based relationships with science-oriented public-funding agencies and does not explicitly take the perspective of the entrepreneurial firm. I fill this gap by analyzing the potential limitations of government funding on technology start-up survival and growth. I argue that those government funding programs that constrain a start-up's strategic agility (i.e., limit opportunity discovery and exploitation) can have adverse long-term effects. By quantitatively examining over 27,000 technology start-ups, I find that such agility-constraining resources increase the likelihood of start-up survival, but limit growth. This paper, therefore, contributes to strategic management, entrepreneurship, and public policy literature.