02342nas a2200193   4500008003900000022001400039245009200053210006900145260004200214300001000256490000600266520173900272653001002011653001502021653003202036653002302068100002102091856003602112       2012                          d  a1927-032100aApplying the Theory of the Firm to Examine a Technology Startup at the Investment Stage0 aApplying the Theory of the Firm to Examine a Technology Startup   aOttawabTalent First Networkc05/2012  a23-270 v23 aThe investment stage of a new technology firm is when resources, opportunities, investors, and early customers first converge. Currently, technology entrepreneurs make many expensive mistakes. They invest in assets and develop capabilities that prove to have limited value. They take too long to discover and validate the product-market fit for their firms during the investment stage and run out of time and money. Understanding how theory can help entrepreneurs make decisions during the investment stage is important to accelerate new-firm formation and growth as well as to reduce the uncertainty of founders and stakeholders of technology firms. 
 
This article introduces a model developed to examine deal making during the investment stage of a new technology firm. It is an extension of a model of lateral firm scope proposed by Oliver Hart and Bengt Holmstrom. The extensions come from considering a technology firm as being both a deal-making entity and a pool of resources during the investment stage. A deal is the result of a decision the entrepreneur and others make to coordinate (i.e., work together to achieve a common objective). Benefits from a deal include cash profits for the firm and private benefits for the entrepreneur. 

This extended model is then applied to examine the author’s firm which is still in the investment stage. Application of the extended model to a real-life situation generated two important insights: i) when private benefits include learning from experimentation, the number of deals increases and ii) at the start of the investment stage, private benefits drive deal-making, whereas at the end of the investment stage, cash profits derived from asset ownership drive deal-making.
10adeals10ainvestment10atechnology entrepreneurship10atheory of the firm1 aAyukawa, Michael  uhttp://timreview.ca/article/556