The Liability Of Leakage: How Indirect Ties To Competitors Impact Innovation In Entrepreneurial Firms

This paper investigates the impact of early relationships on entrepreneurial firm innovation. Prior research has largely focused on the benefits of network ties, documenting the many advantages that accrue to firms embedded in a rich network of inter-organizational relationships. In contrast, we build on competitive interaction research to consider potential drawbacks and emphasize how competitive exposure, enabled by powerful intermediaries, can inhibit innovation. We develop a conceptualization of information leakage that occurs when firms are indirectly tied to their competitors through these shared intermediary organizations. To test our theory, we examine every relationship between entrepreneurial firms and their venture capital investors in the minimally invasive surgical segment of the medical device industry over a 22 year period. The theory and evidence provide novel insights for entrepreneurship research while contributing to the literatures on innovation and competition through networks.