Turning water into wine? Exploring the role of dynamic capabilities in early-stage capitalization processes

•In general, strong management teams are more successful in raising early-stage capital than weak management teams, however, these effects are contingent upon the specific configuration of resources and the choice of focal markets by the firm.•We find that strong management teams and radical innovations enable early-stage ventures to raise more equity-based funding, while higher levels of demand uncertainty decrease the amount of capital raised.•For dynamic capabilities theory, we confirm prior research that argues dynamic capabilities are more than just substantive capabilities contextualized in dynamic markets; Yet we find little limited support for the argument that the dynamic capabilities of the management team enables the firm to raise more early-stage capital.•For the early stage capitalization literature, we find that in contrast to conventional wisdom, attempts to commercialize radical innovations or operate in markets characterized by high levels of demand uncertainty do not enhance the value of strong management teams in the eyes of early-stage investors.•Interestingly, early-stage investors attach the highest value to the strength of a venture's management team when these teams are attempting to commercialize incremental innovations or operate in markets characterized by low levels of demand uncertainty. In response, we propose several new arguments that may explain why investors invest strong management teams.

Technology-based ventures face considerable challenges when attempting to raise early-stage capital during the early-stages of development. To create an operational business they need access to financial capital, but external investors prefer to see an operational business before investing capital. This study extends arguments grounded in dynamic managerial capabilities theory to examine the extent to which various trade-offs among the quality of a venture's management team, radicalness of the firm's technological resources, and demand uncertainty in focal markets impact the ability of ventures to resolve these capitalization challenges. We find that higher levels of demand uncertainty and more radical innovations do not appear to enhance the impact of strong management teams on the raising of early-stage capital. However, lower levels of uncertainty do appear to strengthen the effects of strong management teams. Implications of these findings for dynamic capabilities theory and early-stage capitalization processes are discussed.