Early-Stage of Innovations: Selection System Criteria for Funding U.S. Biotech SMEs

The focus of this paper is small and medium-sized enterprises (SMEs) operating in the U.S. biotechnology industry and how they compete for financial resources during the early stages of innovation development. We utilize selection system theory, which describes how selectors use reputation-based information about selectees as decision factors when making investments. Our findings suggest that there are different predictive variables for SME categories and the types of investors attracted to these categories, which is consistent with selection system theory. We extend prior studies by providing context to early-stage innovation investment funding within an environment characterized as having a long development cycle and representing high uncertainty.