(2025). Technological Uniqueness and Venture Capital InvestmentsMax Planck Institute for Innovation & Competition Research Paper No. 25-18.
We explore how the technological uniqueness of startups influences their likelihood of securing venture capital (VC) funding and the conditions under which such a relationship varies. Using a textbased approach that maps startups in the technology space, we find an inverted U-shaped relationship between technological uniqueness and the probability of receiving first-round VC funding. Startups with moderate uniqueness are more likely to receive investment, whereas those with very low or very high uniqueness are less likely to be funded. This pattern, however, varies with the degree of startup-VC alignment, captured by the technological and industry similarity between startups and VC portfolios. Greater alignment reduces the perceived risks of highly unique technologies, shifting the peak of the inverted U-shaped relationship toward higher uniqueness, thereby making startups with greater uniqueness more likely to receive funding. These findings suggest a familiarization mechanism whereby familiarity with related technologies or industries helps VCs interpret and assess novelty more effectively and mitigate the uncertainty surrounding unique startups. Our study contributes to research on optimal distinctiveness and entrepreneurial resource acquisition by highlighting the role of investor-side characteristics in shaping how technological uniqueness is evaluated. It also offers a new text-based approach for measuring startups' technological positioning, providing a useful tool for future work on innovation and early-stage funding.
