The canary in the cage: How do platform investors in China influence investee firms?
Platform investors in China speed follow-on financing for investees but reduce their innovation, especially when data flows to the investor.
Summary
Using 2,692 investors and 7,237 investments in China, the study applies resource dependence theory to ask how platform companies acting as investors influence the firms they back. Investees backed by a platform investor raise follow-on financing faster, but they innovate less, and the reduction is stronger when the investee's data flows to the investor. The title's canary in the cage image points to the loss of independence that comes with the platform's support.
Editor's opinion
A platform giant's investment is a double-edged endorsement: it opens the door to further funding, but it can dampen the investee's own innovation, especially when the startup's data ends up feeding the investor. Founders should treat data access as the real price of a platform investor, and rivals of a platform should read its portfolio as an extension of its own ecosystem.
Key concepts
platform investors · resource dependence · innovation · data transfer