Upfront payments to venture‐backed startups in technology alliances: Bargaining effects of <scp>VC</scp> affiliations

Abstract Research Summary Upfront payments are important financial resources startups seek to negotiate in technology alliances. This study unpacks how venture‐backed startups can benefit from their VC affiliations and obtain better payments. We develop a bargaining framework and argue that VCs can strengthen venture‐backed startups' hand in alliance negotiations through two distinct pathways: (i) by providing a quality signal, and (ii) by serving as conduits of alternative partnering options. We further suggest that these distinct benefits in bargaining hinge on startups' technological quality, which substitutes for the quality signal arising from VC affiliations but complements the VC's intermediation role in markets for partners. The evidence therefore identifies the distinct and complex channels by which VCs can help startups obtain financial resources at nascent stages through their technology alliances. Managerial Summary Upfront payments in technology alliances are vital revenues for technology startups. This study reveals how venture capital (VC) affiliations strengthen startups' bargaining position and enable them to secure larger payments. VCs add value in startups' alliance negotiations in two key ways: by signaling the quality of the startup's resources and by providing alternative partnering options. The benefits of these mechanisms vary with the startup's technological quality—strong technology can substitute for the VC's quality signal but enhances the value of VC intermediation. Managers should recognize that VCs add value to their ventures beyond financing by also reinforcing their investee startups' bargaining power, helping startups negotiate favorable terms in technology alliances.