@article {556, title = {Applying the Theory of the Firm to Examine a Technology Startup at the Investment Stage}, journal = {Technology Innovation Management Review}, volume = {2}, year = {2012}, month = {05/2012}, pages = {23-27}, publisher = {Talent First Network}, address = {Ottawa}, abstract = {The 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{\textquoteright}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. }, keywords = {deals, investment, technology entrepreneurship, theory of the firm}, issn = {1927-0321}, doi = {http://doi.org/10.22215/timreview/556}, url = {http://timreview.ca/article/556}, author = {Michael Ayukawa} }