The effect of human capital, innovation capacity, and Covid-19 crisis on Knowledge-Intensive Enterprises’ growth within a VC-driven innovation ecosystem

Abstract

Knowledge Intensive Enterprises (KIEs) constitute one of the most promising forms of entrepreneurial activity that can boost economic growth. Especially within the context of Innovation Ecosystems (IEs), KIEs play a central role in modern innovation research. The Covid-19 pandemic highlighted strongpoints and deficiencies in the broader ecosystems, the companies themselves, and most importantly, their founders and employees. Despite the external hindrances, many enterprises found growth driven by their ecosystems’ dynamic and their staffs’ capabilities. Combining insights from a quantitative survey, with actual growth data in the context of a Venture Capital (VC)-driven IE, we argue that enterprise profile - as defined by its innovation capability and its members’ personal, organizational, and demographic characteristics – affect KIE growth potential, and actual growth. In addition, we argue that both enterprise profile, as well as KIE growth, affect its members’ emotional reaction to the Covid-19 crisis, in terms of worry, hope, and optimism.

Introduction

Recent advances in digitization and globalization have profoundly reshaped traditional businesses, providing exceptional opportunities for spawning new forms of entrepreneurship (Hafezieh et al., 2011, Markus and Loebbecke, 2013, Nambisan et al., 2019). Arguably, one of the most promising forms of entrepreneurship that can significantly boost economic growth is Knowledge-Intensive Entrepreneurship (KIE) (Acs, Stam, Audretsch, & O’Connor, 2017). In line with the definition provided by (Malerba & McKelvey, 2019); KIE are “new innovative firms that display a significant knowledge intensity in their business activities and exploit innovative opportunities in diverse sectors”. Being at their initial stages of development, KIE have limited probability of growth compared to established firms (Malerba & McKelvey, 2019). Stinchcombe labelled this phenomenon the ‘liability of newness’ (Stinchcombe, 1965). It is becoming increasingly challenging to identify the characteristics that can lead these enterprises to growth. To date, shedding substantive light on KIE growth is still unaddressed from many aspects and is undoubtedly crucial for both the research and practice of their management.

Achieving growth is difficult for KIE, as they are confronted not only with their infancy, but also resource poverty, lack of legitimacy and weak ties with external businesses. In addition, these enterprises require radical or incremental innovation, significant knowledge about advanced science and technology but also intensive market knowledge to exploit emerging opportunities. To deal successfully with such challenges, all members of the new enterprise should contribute complementary skills, competencies, and experiences. Overriding the idea of the “lonely hero entrepreneur” (Chowdhury, 2005) and shifting attention to the “collective nature of entrepreneurship” (Johannisson, 2003), this research is directed towards the study of various characteristics of enterprise profile that can drive KIEs to realise growth. This profile is mainly outlined by the personal traits, capabilities, skills and demographics of the human capital (founders and employees). In addition, considering that innovation has been characterized as “the engine that drives revenue growth” in organizations (Patterson, 1998), KIE profile is also complemented by its innovation capability that is strongly related to long-term corporate growth (Yang, 2012).

Taking a step forward, this paper differs in that it directs attention to context. Context refers to the situations – not the physical environment, but rather the opportunities – that establish the conditions for growth (Griffin, 2007). The context perspective on new venture growth is really important, as KIE growth cannot be analyzed in dissociation from the environment (Welter, 2011). Thus, this paper tries to link KIE growth with the context of Innovation Ecosystems (IE) (Granstrand an Holgersson, 2020, Moore, 1993). The main argument behind this rationale is that participating in an IE can ensure growth, as the enterprise will receive significant support by gaining access to acceleration services, infrastructure, an established network of external actors, and intensive market knowledge or funding. More specifically, this study focuses on an IE that is built around a Venture Capital (VC) accelerator, that has a main focus on spin-offs (i.e., knowledge-intensive firms), that is located in Greece.

Against this background – and motivated by the fact that contemporary literature has not yet explored these factors as part of a unified interacting ecosystem – this work was designed to further explore how intrinsic characteristics that are known to affect innovation can shape KIE growth, especially in the context of an IE. Furthermore, the researchers’ access to financial data provided directly by the KIEs and the VC created an opportunity to further illuminate the inner workings of said ecosystems.

Given the importance of the broader environment for new venture growth and IEs in general, it is safe to assume that the global crisis brought forth by the Covid-19 pandemic had an important effect on most SMEs and their employees (Montani and Staglianò, 2021, Obrenovic et al., 2020, Thukral, 2021). During this study, Covid-19 became a global phenomenon disrupting traditional business processes. Thus, this research also examines the impact of such a period of high uncertainty, on KIE growth. Overall, the chronological circumstance of this research also provided a motivation to place this investigation in the unique context of a global crisis, given the limited amount of similar research especially within the context of KIEs.

Based on all of the above, the research objectives of this study can be articulated as follows:

• Examine the effect of enterprise profile (as defined by its innovation capability, as well as its members’ personal, organizational, and demographic characteristics) on KIEs growth (in terms of both growth potential and actual growth) within an IE that is built around a VC.

• Explore how enterprise profile affects the extent to which the Covid-19 crisis affects the KIE in terms of their members’ emotional reaction within an IE that is built around a VC.

To address these objectives, the research design is based on a combination of insight from a questionnaire-based quantitative survey and actual growth data. The quantitative analysis was conducted in eighteen (18) KIEs within the VC-driven IE, aiming to test the significance of key characteristics identified from the literature and assess their impact on their growth (both during the Covid-19 crisis, as well as under normal circumstances).

This paper is structured as follows. Section 2 presents the interdisciplinary rationale behind human capital characteristics and new enterprises’ growth and provides background information on the KIE and IEs. Section 3 presents the research materials and methods employed. Section 4 outlines the obtained results. Section 5 provides a discussion of the findings, their theoretical and practical implications, and Section 6 provides the conclusions, limitations, and further research propositions.