TLDR:
- Firms that receive R&D credits are more likely to acquire VC-backed startups.
- Research by ESMT Berlin shows that larger firms prefer to invest in startups rather than starting from scratch in their R&D efforts.
Firms that receive research and development (R&D) credits are much more likely to acquire venture capital (VC) backed startups, alongside investing in their own R&D efforts, according to new research by ESMT Berlin. The study by Prof. Merih Sevilir and William McShane aimed to understand how R&D credits influence established firms’ acquisition of startups and their own innovation efforts. The researchers analyzed data from over 3,500 U.S.-based firms that received tax credits related to R&D over a 25-year period. They found that firms receiving R&D credits were more active in M&A activity, with a similar volume spent on acquisitions as on R&D.
The study also revealed that firms with higher R&D costs were less likely to acquire VC-backed startups, indicating a preference for established firms to use tax credits for investing in innovative startups. Larger organizations were particularly interested in acquiring VC-backed startups, which could provide a boost to their R&D capabilities and innovation potential. For startups, being acquired by a larger firm could mean increased growth and access to resources for innovation.
Overall, the research suggests that R&D tax credits play a significant role in encouraging firms to acquire startups as a strategic move to enhance their innovation capabilities and diversify their R&D efforts. By reallocating resources to acquire high-performing startups, larger firms can support the startup ecosystem by providing capital and opportunities for growth.
