Move-in Ready or Fixer-Upper? VC Specialization and Start-up Innovation

Extant scholarship typically assumes that VC firms prefer to pick winners. I offer an alternative perspective: that specialist VC firms can select less attractive start-ups—with innovative potential but in need of help—and then contribute to the start-ups’ innovative processes so they can achieve their potential. The analogy is buying a fixer-upper house, which, with the right help, can be brought to the level of one that is move-in ready. I argue that specialist (versus generalist) VC firms in the syndicate have superior commercialization knowledge and specialized resource networks, and they can choose to follow a move-in-ready strategy (select winners) or a fixer-upper strategy (build winners). This choice is contingent on the research environment and how unique the help from the specialist VC firm is: in well-developed research environments, a specialist adds less value and may follow a move-in-ready strategy; in less-developed research environments, a specialist adds more value and may follow a fixer-upper strategy. I leverage an ideal empirical context, global biotechnology VC-backed start-ups, over the period 1996–2006, when the biotech industry was established in the United States and developing in 25 other countries, and highlight qualitative insights from 20 interviews with investors in seven countries.