Strategic Alliances as a Source of Early-Stage Seed Capital in Technology-Based, Entrepreneurial Firms

A significant gap exists in early-stage seed capital for technology-based new ventures. This article reports the results of a survey of embryonic firms in the southwestern United States, which received significant amounts of their initial capital from strategic partners. Our concern in this paper is the resource development process of high-growth (technology-intensive), early-stage firms through the process of alliance formation with an established firm. The importance of technology development and sharing as a motivation for the formation and operation of alliances has been stated by Osborn and Baughn (1990: 504): "Many of the alliances made between firms with headquarters in developed nations are in high-tech areas, and many also involve joint research and development." In some areas of the U.S., an active seed capital resource exists, as either formal institutional capital sources or "angels." Firms in the region surveyed here (primarily New Mexico, Arizona, Utah, Colo-rado and parts of Texas) are not so fortunate. In these states, venture capital presence is much scarcer than in the Silicon Valley or Route 128 areas, making procuring high risk capital and expecially early stage high risk capital particularly challenging. Thus, the study of alternative means of accessing early stage, high risk capital in the southwestern region of the U.S., such as strategic alliance formation should be of interest to both academic researchers and practitioners in the areas of technological entrepreneurship and regional economic development. 3 Through a survey of firms which received a significant portion of their early-stage seed capital from a strategic alliance with an established firm, the authors have examined various characteristics of the partnerships. The firms were identified through extensive research of multiple sources (at least thirty) such as universities, federal laboratories, state and local economic development agencies, incubator centers, technology parks, venture capital funds, NASA Regional Technology Transfer Centers, corporate alliance partners, entrepreneurial networking organizations and via word-of-mouth from other entrepreneurs. In selecting the target firms for the study, the authors adopted the definition of a strategic alliance (SA) as a collaborative relationship between an established and an early stage technology-based firm which is seeking seed capital to grow its business, where the established firm invests seed capital in the early stage firm, usually through one of the established firm's operating divisions, corporate functions, or functional units. Of 96 firms originally identified, 45 responded (46 %) and of these, 33 (34%) were deemed fitting to our research criteria and …