N° 19-22: Rapidly Evolving Technologies and Startup Exits

We examine the determinants of startups' exits using novel technology measures based on patent text. We propose that innovation in rapidly evolving technology areas substitute existing technologies, creating a path to an independent market presence. Startups innovating in rapidly evolving areas raise more capital from VCs, grow faster, and exit quicker. These startups are significantly more likely to exit via IPO than sell-out. Innovation in rapidly evolving areas has declined since the 1950s, and particularly so since the late 1990s, suggesting a new technology-based explanation for the decline in IPOs and the surge in sell-outs observed in recent years.