Markets for technology

What is a market for technology?

Transactions for the use or creation of technology. It can include:

• Licensing of patents and other intellectual property, along with know-how

and services-full technology package

• Merely patent licensing

• Designs, software, or technical services (not patented but embodied in

artifacts)
 Same product markets

Vertically related suppliers and buyers

What is a
market for
technology? Existing knowledge

Contracts for the creation of new knowledge

Some points related to horizontal and vertical transactions

Horizontal Vertical
 Longer complex process  Transfer of equipment
 Investment required on  No risk to provider
both sides  Quick results
 Loss of provider control  One-way
 Dependency risk
 Partnership/JV based
 Transfer to non-rivals

4
 Typology
Existing Technology Future Technology or component

Horizontal Market/ Smartphone producers licensing R&D joint ventures between rivals
Transactions with actual
or potential rivals

Vertical Market/ Licensing of IP core R&D joint ventures

Licensing to non rivals in semiconductors

Source: Arora, A., & Gambardella, A. (2010). The Market for Technology. Handbook of the Economics of Innovation
 Types of Licenses
Type Explanation

Exclusive Licensee uses exclusively within the contract area & period.
Standard practice to include strict conditions such as minimum sales amount, minimum
technical fee, restrictions in economic product dealings etc.
As issuance of an identical license to a 3rd party is not possible.
Non-exclusive Licensor reserves the right to provide the license not only to a particular licensee but also
to other parties.
Sub-licensing Technology using party who has been given the license can offer a sublicense to a 3rd
party under the sublicense provision.
It can be used efficiently when a single technology is diversely utilized in terms of usage,
purpose, and area.
Cross-licensing This method can be chosen when parties have a need to mutually exchange and use
technology which the other party possesses.

Package licensing A method where many technology licenses are added to a single contract and a method
where technology, equipment, components, capital etc. are comprehensively provided.
The Process
Discovery
 Discovery of competitive technology
 Transfer request

Technology valuation
 Qualitative/quantitative valuation of the technology
 Analyze possibility of clash with 3rd party owned technology
 Preliminary matching of technology
 Pre-analysis of whether the transferred technology can secure
competitiveness if seeking to transfer overseas
The Process
Negotiation and contracting
• Establish strategy and consultation on major conditions
• Examine and draft contract
• Calculate technical fee
Post agreement management
• Monitor compliance to the conditions of the contract
• Actual inspection and report
Historical Context
Vibrant market for technology during 19th Century in the US:

“The bulk of this early commerce in patents (80 to 90 percent of transactions

during the 1840s) involved efforts by inventors to make multiple partial
assignments of their rights for different, geographically restricted areas”

“Thomas Blanchard, inventor of the gunstocking lathe, a woodbending machine,

and a variety of other devices, exploited these possibilities to the hilt. For example,
he used his lathe himself to make gunstocks for the Boston market and for export.
He also leased the rights to use the invention to gun producers operating in other
locations and to manufacturers making shoe lasts, tool handles, wheel spokes, and
a variety of other goods in different places around the country”

Source: Lamoreaux, N.R., Sokoloff, K.L. (2005). The Decline of the Independent Inventor: A Schumpterian
Story? NBER Working Paper 11654.
Historical Context
The role of technologically creative and specialized inventor

By 1910-11, inventors with 10 or more career patents assigned 62.4 percent of their
patents by the date they were issued (56.2 percent of them to companies), whereas those
with just 1 or 2 career patents assigned only 15.0 percent of their patents

Early 20th century witnessed the rise of large-scale businesses with in-house R&D
laboratories, particularly in the science-based industries associated with the Second
Industrial Revolution. For instance, General Electric and IBM

Talented inventors being employed in the large labs

Source: Lamoreaux, N.R., Sokoloff, K.L. (2005). The Decline of the Independent Inventor: A Schumpterian Story? NBER
Working Paper 11654.
Historical Context
The resurgence of markets for technology in the 1980s supported by greater
tradability of knowledge, and increased scope of new technologies

1. Young, technology-based ventures could receive funding from capital market

that is extended in scope and sophistication.

2. Science and engineering basis of technical change grew that improved the
efficacy of patent protection

3. Improvements in instrumentation (particularly information technology)

strongly complemented the use of scientific knowledge
Some More Reasons
• Technology integration & combination
• Reduction in technology life
• Rapidly changing market demands
• Reduction in technology acquisition costs
• Diversification of risk
Why the Market for Technology?
• Let us understand this using a counter argument, i.e., what if the
market for technology is missing?
• To ensure financial benefits from a technology:
• Innovator must exploit the technology in-house
• It must be embodied in goods and services which are then sold
• Technology embodied products must have either lower costs or command
higher price

• It is easier said than done. Why?

Source: Arora et al. (2002)
Cont….
• Firm must have access to the complementary factors
• Plant, machinery and other physical equipment, distribution channels, marketing
teams and so on
• Must attain large volume of output to produce, sell and make profit
• What if the inventing firm does not have access to those assets and/or nor these
assets are traded in the market?
• Firm with greater access to such assets can get better returns that will grow more if
it is a large firm
• Teece (1986): firms must invest in complementary assets to maximize their returns
from IP
• Advantage for large firms while small firms will face hurdles in developing and
commercializing technologies
Source: Arora et al. (2002)
What if the technology can be sold?
• The importance of complementary assets is greatly diminished

• More options to the innovator that has developed new technology

• May choose to sell or license it to others

• Innovating firms need not become pure licensing companies

• Strategic decision what to license

• Examples of firms as a successful as specialized technology suppliers

Source: Arora et al. (2002)

What if the technology can be sold?
• The final choice may involve:

• Strategic consideration of the firm like competition in product market vis-à-vis

technology market

• The efficiency of markets for other types of assets, including finance

• The transaction costs

• Efficient technology markets as a great levelers.

Source: Arora et al. (2002)

Why do companies Three sources of gains

license?
Technology is “infinitely expansible”

Gains from trade Licensing

Comparative advantage
 • To enjoy monopoly power (Gallini
1984)
• To promote their technology as a
Why license? dominant standard
(Cont..) • To provide incentives to potential
adopters
• Limits to access complementary
assets
Limiting factors
• Cognitive factors (such as context dependence and absorptive
capacity)
• Contractual problems
• R&D output is ill-defined
• Exchange of information can be problematic
• Potential lock-up
• Monitoring costs
• Other market imperfections
• Asymmetric information

Source: Arora et al. (2001)

 When can licensing work well?
Teece (1986) identifies following critical Appropriation through licensing works
dimensions: best:
• Nature of technology • when there exists a substantial gap
between replication and imitation
• Strength of property rights regime
costs.
• Complementary assets • when the underlying knowledge
• Ease of replication while transferring vis- base is sufficiently codified, IPRs are
à-vis ease of imitation well defined and protected, licensing
can work well
 a) Revenue vs. rent-
dissipation effects

LARGE FIRMS b) IP management

a) Corporate Venturing
Revenue vs. rent-dissipation effects in the licensing
strategies of the large firms
• Two forces in opposite directions
• The revenue effect (RE)
• The profit dissipation effect (PDE)
• The licensing and royalty revenues minus the transaction costs vs lower price cost
margins and reduced market share from the licensee
• Licensor may limit the extent of PDE
• Imposing quantity restrictions
• Exclusive territories
• Unit royalties might be fixed such as to control the licensee’s output

But the potential threat to the licensor’s market share does not disappears
Source: Arora and Fosfuri (1999)
Revenue vs. rent-dissipation effects in the licensing
strategies of the large firms
Implications

• Firms with a large market share in the product market are better off exploiting the
technology in-house

• If the market share is small, the firm may be able to increase profits by licensing in
addition to in-house exploitation

• Licensing is more attractive when the licensee operates in a different market and is
unlikely to compete very strongly
Source: Arora and Fosfuri (1999)
 Increasing importance of IP management

• Management of IP is a serious business for firms

• In some firms the management of IP has moved from the licensing of “non-
core” technologies to become a central element in technology strategy
(Grindley and Teece 1997)

• Examples of industries like semiconductors and electronics where licensing and

cross-licensing have become an important means for generating revenues

• Management needs to be more active and positive

 Corporate Venturing
Large firms better suited:
• For exploitation than exploration
• To adapt incremental improvements of existing technologies and for commercialization of
discoveries than for making new discoveries, particularly radical breakthroughs
• May not recognize or nurture new discovery especially if it does not relate to the firm’s
core operations and markets.
• Increasingly, firms are spinning off these technologies as new ventures
• These ventures are funded and managed by the parent
• Corporate venturing has increased
• It can provide more “patient” capital
• There can be delays in decision making (Chesbrough 1999)
• Many firms see this as a way of earning high financial returns as well as accomplish strategic
objectives.
CHALLENGES FACED BY THE SMALLER FIRMS
• Must acquire the complementary assets if intends to commercialize
• For startups, the choice often amounts to a fundamental choice of
the business model itself.
• Trade off the costs of acquiring complementary assets and rents lost
or shared with their partners in a licensing deal.
• The technology owner (small firm) are unlikely to get the full return
from the technology:
• Inefficiency of contracts for technology and
• Differences in bargaining power
Buyers Perspective Impact on Industry

Positives: • More competition.

• Increase in stock of • Reduction in barriers to entry
technologies • Specialized engineering firms
• Increase in value of assets
• In-house R&D:
 Absorption
 Bargaining Power
 Complementarity
• Not invented here syndrome
 Absorptive Capacity
Definition
• Cohen and Levinthal define absorptive capacity as the “ability to identify,
assimilate, and exploit knowledge from the environment.” > 51000 citations

• Cumulative process and path-dependent

Absorptive capacity refers not only to the acquisition or assimilation of information

by an organization but also to the organization's ability to exploit it .
 Absorptive Capacity Building
Individual to Organization:
• Significance of prior knowledge
• Learning to learn
• Learning efforts are critical
A firm's absorptive capacity is not simply the sum of the absorptive
capacities of its employees
 Absorptive Capacity Building
Organization:
• Communication with the external environment
• Communication within the subunits of an organization
• Need for gatekeepers
• Receptors in case of uncertain technical change
• Group’s absorptive capacity is more relevant
• With-in group communication and between groups communication
• Specialization: Good or Bad?

The Japanese practice of rotating their R&D personnel through marketing and
manufacturing operations, for example, while creating knowledge overlap, also enhances
the diversity of background of their personnel
 Absorptive Capacity Process
• Developed or Acquired?
Acquired by hiring new personnel, contracting for consulting
services, or even through corporate acquisitions
• Path Dependence
• Equipped with absorptive capacity in a particular area, a
firm may accumulate additional knowledge in the
subsequent periods
• Existing expertise in related field improves the
understanding and evaluation of the intermediate
technological advances
• Implications of cumulative and path dependence: Lockouts
• Role of own R&D
Model of sources of a firm's technical
knowledge
Absorptive Capacity

Sources of a firm's
Own R&D technical knowledge

External industry knowledge

(University, Competitors)

Source: Cohen and Levinthal (1990)

Patents and Market for Technology
 Profiting from Innovation
• Appropriability Regimes refers to the protection afforded to
innovators through both legal mechanisms.
 Strong vs Weak
 Industry specificity

Replication vs Imitation cost

 • Information Paradox: resolved with IP
• Licensing: agreement between the owner
of IP and a firm that is willing to pay a
lump sum or a certain amount of royalties
IP and Licensing in order to make, use, and sell products
that incorporated the IP.
 Licensing-in
 Licensing-out: many believe that Apple lost
an opportunity to make the Mac OS an
industry standard by refusing to license the
technology.
 Cross- licensing
Engaging with Academia
 The Motivation
• Industry
 Knowledge as main competition.
 Companies originating from Academia.

• Academia
 Private sector investment in R&D is large in a few countries. Countries are constrained in
terms of availability of funds and need to allocate them to areas like healthcare, primary
education, poverty alleviation etc. That reduces the allocation to academic institutes.
 Increasing expectations from academics in terms of contribution to the society.
 Examples of successful cluster like Silicon Valley.
 Incentivizing academia through patenting.
 Industry-Academia Interaction

• Technology transfer: licensing; disclosure, patenting licensing.

• Research support: contributions by industry to universities in the form of
research funds and equipment.
• Co-operative research: contract research with individual investigators, consulting
by faculty, and group arrangements to address specifically immediate industry
problems.
• Knowledge transfer: co-operative education, curriculum development and
personnel exchanges, extending to research consortia, co-authoring of research
papers by members of a university and industry and employing university
graduates.
Industry-Academia Interaction: Some Concerns
• Publication
• Patenting and Licensing:
 Issues: Patenting (to do or not to do)
 Exclusive vs Non-exclusive
 Pricing

• Spin-offs:
 Ensure domestic company use technology
 Mostly recommended in case of drastic innovation
 Lack of complementary assets and business knowledge
 Mortality Rate
 Type of Technology
• Type of technology may have significant impact on the various issues raised
regarding TT from academia to industry
• Core technologies
• Stage of technology development

Institutional Requirements
• National Policy on IP and Academia Industry Transfer
• University Policy
• TT Offices
 Technology Transfer Offices
• Administrative support for TT
• Expertise in filling patent
• Marketing of Technologies
• Establishing Industry Links
• Help in creation and supporting the spin-offs

It is like a central body to handle all issues relating to the transfer of technology is
that it makes possible to professionalize technology transfer activities and
enhance the bargaining power of the universities.
International Technology Transfer
 Technology Transfer

• Core vs peripheral
• Explicit vs tacit
• Direct (market mediated) vs Indirect (non-market mediated)
 Channels of Technology Transfer

• Market-mediated mechanisms: some form of formal transaction

underlies the technology movement.
 Trade.
 FDI
 Licensing.
 Joint Ventures.
• Non-market mechanisms: which do not involve such transactions.
 Imitation.
 Departure of employees.
 Data in patent applications and test data.
 Temporary Migration.
 • Technology transfers are
distinguished from technology
Technology Transfer diffusion as the latter is viewed as
vs another benefit that transfer of
technology brings.
Technology Diffusion
• Concept of externalities-spillovers.
 Modes and Channels of Technology Transfer
• The term “mode” is used to refer to the transfer links between the phases of the
technology development chains of the transferor and transferee.

• The TT modes can be classified under four main groups namely:

 Sales intensive
 Manufacturing intensive
 Development intensive
 Research intensive

• Each of these categories involve different strategic issues from a business

perspective.
 Technology Transfer Modes
Transfer Mode Possible Transfer Mechanism

Sales and service agreement either as an agent or sole

Sales Intensive
distributor

Subcontracting arrangements, original equipment

Manufacturing
manufacturing (OEM), production licensing, and joint
Intensive
ventures

Development Original design manufacturing (ODM), production

Intensive licensing, joint ventures

Joint R&D and production, university – industry licensing,

Research Intensive
Government R&D institute – industry Licensing
47
Resource Commitments and Mechanism

Transfer Mechanism

Exporting or
Resources Licensing Joint Venture Subsidiary
Selling

Physical L L M H

Human L M H H

Organization L L M H
 Control
• By control we mean authority over operational and strategic
decision-making.
Transfer Mechanism
Exporting or Selling Licensing Joint Venture Subsidiary

Control H L M H

Dissemination Risk L H M L

• In case of JV local firm characteristics are also important.

Finding the right partner includes search cost.
 Technology Type and Mechanism
• Codified know-what information as that contained in
written documents and manuals.
• Tacit knowledge as knowledge that is non-verbalizable,
intuitive, unarticulated. It is highly context specific and
has a personal quality, which makes it hard to
formalize and communicate.

Transfer Mechanism

Licensing Joint Venture Subsidiary

Marginally
Tacit Not Preferred Preferred
Preferred
 • Characteristics of technology supplier
• product line diversification (+ with licensing)
• country and industrial experience (+ WOS)
• distant the affiliate’s business is from the parent’s
core business (+ with licensing)
• Technology characteristics: More internalization
• for newer technologies
Others • for technologies with fewer previous transfers
• for technologies not far from the transferors
principal line of business
• for transferors with little experience with prior
technology transfers
• Environmental factors
• geographic distance
• host country technical capabilities
• cultural distance
Technology Transfer and Government
Policies
 Broad classification

Market Approach Government Induced TT

Source: Aggrawal (2001) WP No. 68

 Market Approach
• Markets neither arise nor function in a vacuum; they require a
supporting infrastructure.
 Physical
 Institutional and Policy (laws, legal settings, norms, standards, or
“rules of the game”)
• Equal parties
• Policy options remain to strengthen the “supply side”
• Minimization of business transaction costs, human capital
formation, domestic enterprise development, cluster promotion,
encouraging closer links between industry and research, and
strengthening physical infrastructure.
• Supporting institutions: Standard setting, Technology Trader, Portals;
IPRs; Competition Policies
 Government Induced TT
• Technology and Innovation Policy
• Direction and pace of technology development
• Industrial Policy and Trade Policy
• Demand side
• Development Strategy

• The underlying rationale for this approach is the identification

of the asymmetry and to control the potentially adverse
economic consequences of transfers for the weaker party.
 Finance and
Innovation
Source: Based on Chapter 9: Finance and Innovation by Mary
O’Sullivan in The Oxford Handbook of Innovation
Source: Based on Chapter 13: Capital Markets, Innovation
Systems and the Financing of Innovation by Alan Hughes in
The Oxford Handbook of Innovation Management
Characteristics of Innovation

EXPENSIVE TIME CONSUMING UNCERTAIN

 Asymmetric
Information

Funding
Innovation Moral Hazard

Market Failure
 Dominated by staff costs

About R&D
Returns are highly skewed
Expenditure

Sunk costs
 Working of the R&D Market : Case of
Information Asymmetry
PH PL
SH 100000 SL

100000 75000

75000 R&DM
R&DH 50000 R&DLM
50000
R&DM R&DL
R&DLM
R&DL
25000 50000 No. of R&DH 50000 75000 No. of R&DL
projects projects
a. High quality R&D Projects b. Low quality R&D Projects
Asymmetric Information--- Underinvestment
• Two kinds of R&D investment projects are available—high-quality projects and low-quality projects.
The person floating the project knows much more about its quality than an investor does.

• In Figure a: SH is the supply curve for high-quality project i.e., the amount that an investor is ready to
pay/invest.

• R&DH is the demand curve i.e., amount requested by the borrower.

• In Figure b: SL and R&DL are the supply and demand curves for low-quality projects.

• Thus, the market price/cost for high-quality projects is 10,0000, for low-quality projects 50000, and
50,000 projects of each type are sold.
Asymmetric Information--- Underinvestment
• Initially, investors might think that the odds are 50-50 that a project will be high quality. Investors
therefore view all projects as “medium quality,”. The demand for projects perceived to be medium
quality, denoted by R&DM.

• Medium-quality projects will sell; 75000 each.

• However, fewer high-quality projects (25,000) and more low-quality projects (75,000) will now be sold.
Cont..
• As consumers begin to realize that most projects sold are low quality, their perceived demand shifts.

• New perceived demand curve: R&D LM .i.e., low to medium quality.

• However, the mix of projects then shifts even more heavily to low quality.

• As a result, the perceived demand curve shifts further to the left, pushing the mix of projects even
further toward low quality.

• This shifting continues until only low-quality projects are sold.

• At that point, the market price would be too low to bring forth any high-quality projects for sale, so
consumers correctly assume that any project they buy will be low quality. As a result, the only relevant
demand curve will be D L.

• The lemons problem: With asymmetric information, low-quality R&D projects can drive high-quality
R&D projects out of the market, leading to a case of under-investment.
 Externalities in case of R&D Projects
 Horizontal axis: Company’s investment in R&D.

 Vertical Axis : Rate of Interest at which investment amount is

Return/ borrowed.
Int rate MSBR&D
 Demand curve, DR&D : marginal private benefit of the
investment to the Company.
DR&D
RI  Marginal social benefit , MSBR&D: marginal private benefit +
MCR&D marginal external benefit.
RO
 MSBR&D refers to the total benefit to society and other
MEB R&D companies including the DR&D

 Positive externality: MEB R&D refers to the extra benefit. This

marginal benefit is large for a small amount of investment but
R&D1 R&DO R&D investment level falls as the investment becomes extensive.

Positive Externalities in R&D Projects  The inefficiency arises because the investor doesn’t receive
all the benefits of her investment .Chances of spillover effect,
imitation exist. Hence, MSBR&D > DR&D .
 Positive externalities lead to underinvestment
The rate of interest RI results
in a level of investment,
R&D1.

Return/
Int rate MSBR&D
As a result, the RI is too high
to encourage her to invest in
DR&D the socially desirable level of
RI investment.
MCR&D
RO

MEB R&D A lower interest rate , RO is

required to encourage the
efficient level of investment,
R&DO.
R&D1 R&DO R&D investment level

Externalities lead to underinvestment Conclusion: Because there is then little reward for
doing R&D, the market is likely to underfund it.
 Three works of Joseph Schumpeter
1. The Theory of Economic Development (1934)
• Workings of a bank credit cycle through
which innovative entrepreneurs are funded
• The “circular flow” of production-- broken
out of by the creation of bank credit ---
enables the innovative entrepreneurs to
Historical outbid and draw away the necessary means
of production from other businessmen---
Context transformative changes in the means and
methods and purposes of production to be
introduced.
2. Business Cycle: A Theoretical, Historical and
Statistical Analysis of Capitalist Process (1939)
3. Capitalism, Socialism and Democracy (1942)
• Role of large-scale enterprises to support
innovation
 Parameters of evaluation

• Information
• Incentives
• Control
Microeconomics of
Enterprise Finance Sources (Bank based or market-based
finance)
• Debt
• Equity
• Internal sources
• Venture capital
 • Internal sources
• Companies with substantial liquidity

• Cost of financing from internal source

A major source must be lower than the external sources

• Role of company's stage of development

 Venture Capital Financing
 Venture capital: Form of private equity and a type of financing
 For: Start-up companies and small businesses
 Source: Well-off investors, investment banks and any other financial
institutions.

Mechanism • Staging the commitment of capital and preserving the

employed to option to abandon
deal with • Using compensation systems directly linked to value
information creation
asymmetry • Active involvement
 • Seed investment: small amount of money to
determine if the idea deserves any further
consideration.
• Start-up: companies less than one year old for
product development, prototype testing and
marketing testing.
• First stage: early development

The Stages • Second stage: expansion

• Third stage: profitable but cash poor
• Fourth stage: rapid growth towards liquidity
• Bridge stage: mezzanine investment
• Liquidity stage: cash-out or exit
Plummer (1987)
 The elements of the contracts address
three fundamental problems:
• The sorting problem: how to select the
Venture best venture capital organizations and
the best entrepreneurial ventures
Financing • The agency problem: how to minimize
the present value of agency costs,
• The operating-cost problem: how to
minimize the present value of operating
costs, including taxes.
Case of ARD
• American Research and Development: Formed in 1946 by MIT President Karl
Compton, Harvard Business School Professor Georges F. Doriot, and local business
leaders.
• A small group of venture capitalists made high-risk investments into emerging
companies that were based on technology developed for World War II.
• The success of the investments ranged widely: almost half of ARD's profits during its
26-year existence as an independent entity came from its $70,000 investment in
Digital Equipment Company (DEC) in 1957, which grew in value to $355 million.
• Because institutional investors were reluctant to invest, ARD was structured as a
publicly traded closed-end fund and marketed mostly to individuals
• The few other venture organizations begun in the decade after ARD's formation were
also structured as closed-end funds
• Involvement with venture in advising on plan and strategy, help in finding co-
investors, recruiting key managers, serving on boards
Venture Financing in India
Risk Capital Foundation was established in 1973

IFCI Venture was set-up in 1975

Indian government granted legal status to venture capital activities in

1988.

1988, IFCI Venture launched “Technology Finance & Development

Scheme”: provide financial assistance for setting up projects aimed at
commercialization of indigenous technologies.
The first Indian venture capital firm was the Technology Development
and Information Company of India Ltd. (TDICI), a 50/50 joint venture
between ICICI and UTI.
 Phase-Wise Development of VC Ecosystem in India
Phase 1 • Largely state-sponsored in India.
Pre-1995 • In 1988 : govt introduced VC guidelines called Controller of Capital Guidelines.
Birth Pangs • Restrictive guidelines, deficient legal and regulatory systems and capital market scandals.
Phase 2 • In 1995 : foreign companies allowed to make investment in India.
1995-2000 • Indian entrepreneurs' success in Silicon Valley attracted VCs.
• In 1999: 80% of VC investments from overseas firms.
• 70% of the deals from IT and ITES-RE
Phase 3 • Volume of deals started picking up post 2005.
2001-2010 • VC funds testing Indian waters: average deal size remained small, between $3 mn-$4 mn .
• Major share: Online services, starting from 2007.
• Healthcare and Banking, Financial services and Insurance: started picking up.
Phase 4 • Start ups came up.
2011-continuing • The first half was characterized by hectic deal volume activity, peaking in 2015.
Gaining • 2018 marked a record year for VC investments, with India climbing the charts of VC
momentum investments in the world.

Source: Pandey, I. M. (1998). The process of developing venture capital in India.

 PROFILE OF VENTURE CAPITAL IN INDIA

VCFs are promoted by

State government-
Central government- Foreign banks or private
controlled
controlled development Public sector banks sector companies and
developmental finance
finance institutions financial institutions
institutions

Gujarat Venture Finance

TDICI by ICICI; Risk Indus Venture Fund,
Company Limited Canfina by Canara Bank;
Capital Fund by Credit Capital Venture
(GVCFL) by Gujarat and SBI-Caps by State
Industrial Development Fund and Grindlay’s India
Industrial Investment Bank of India
Bank of India (IDBI). Development Fund
Corporation
Source: Bain & Company, 2023. India Venture Capital Report 2023
 • Cross-industry variation in basic characteristics of
innovation activity
Distribution of innovation activity between
Finance, entrant and incumbent
Stability or turbulence of these population’s
Innovation share of innovative inputs and outputs

and Industry • Sectoral differences have important implications

for resource allocation
• Bidirectional relationship between innovation and
finance
 • Are entrants really new ventures?
Entrant • Spin-offs
• Diversified firms
Dominant • Competing directly
• Innovative strategy based on licensing and JV
Innovative • Temporal variations
• Example of automobile industry
Activity