Exploration-Exploitation and Acquisition Likelihood in New Ventures

The market for acquisitions has been a blind spot in exploration-exploitation research in the new venture context. The introduction of the acquisition exit outcome as a performance dimension for new ventures, especially among high-tech ventures, shifts the traditional temporal logic of exploration-exploitation theory by introducing previously unacknowledged short-term benefits of exploration. We bring the acquisition outcome into the picture and investigate the relationship between the exploration-exploitation continuum and profitability, survival and acquisition likelihood simultaneously. Using the Kauffman Firm Survey data we provide evidence for a link between exploration and the likelihood of acquisition (defined as the business being sold to or merged with another business), although industry technology level poses a boundary condition such that the association is not observed in low and medium technology firms. An inverse U-shaped relationship that is monotone negative for most of the data range was found between exploration and the profitability of low and medium-tech firms, and a negatively linear relationship was found for exploration and the profitability of high-tech firms. Our findings lend some support to the viability of “born to flip” strategies involving comparatively higher exploration levels in high-tech start-ups and sacrifice of short-term profitability