Why Startups Benefit When Big Investments Come Later.

This article discusses a study by Harsh Ketkar and Maria Roche highlighting how the timing and size of a startup’s first funding round can influence innovation. They use the failed photo-sharing app Color Labs as a cautionary example. Despite raising $41 million before launching in 2011, Color Labs scaled quickly instead of refining its product, leading to user dissatisfaction and closure within two years. Analyzing 11,853 U.S. tech companies founded from 2010 to 2019, the researchers found that later funding fosters ongoing experimentation, while large early investments often reduce unconventional technology combinations. They conclude that delaying major investment and selecting investors who value risk-taking and creativity can help startups develop more innovative and sustainable solutions. INSET: "A Large Investor Would Have Cut Their Losses".