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Can startups generate a competitive advantage with open AI tools?

Author

Listed:
  • Impink, Stephen Michael

    (HEC Paris)

  • Langburd Wright, Nataliya

    (Columbia University - Columbia Business School, Management)

Abstract

We examine how open source generative AI adoption affects the venture performance of high-tech software startups. Using a matched sample, we find that startups that use generative AI in open product development raise about 15% less funding, especially in competitive markets with many similar AI adopters. However, startups targeting broad markets raise roughly 30% more funding when adopting generative AI early—within six months of its release—before a dominant design emerges. These findings suggest that while early AI adoption in the open can be beneficial, widespread use may erode differentiation. Overall, these results indicate that generative AI is not a silver bullet and may even hinder fundraising when competitive advantages are easily replicated.

Suggested Citation

  • Impink, Stephen Michael & Langburd Wright, Nataliya, 2025. "Can startups generate a competitive advantage with open AI tools?," HEC Research Papers Series 1583, HEC Paris.
    • Handle: RePEc:ebg:heccah:1583
    DOI: 10.2139/ssrn.5386212
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    JEL classification:

    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General

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