Startup acquisitions by established firms are becoming more common, especially in fast-moving industries like tech and healthcare. But integrating a newly-acquired startup presents challenges, and can end up quashing creativity and worsening innovation outcomes.
A new study, funded in part by the Mack Institute and conducted by Mack Core Team Member David Hsu, along with co-authors Qingqing Chen and David Zvilichovsky, explores how these integrations can go more smoothly by fostering “inventor commingling,” a process in which inventors from both the acquired and acquiring organizations collaborate directly on R&D, facilitating the transfer of both technological expertise and organizational knowledge.
“When a company buys a startup, combining the two can either spark innovation or accidentally shut it down,” explained Hsu. “Our research shows that the simple act of putting inventors from both companies in the same room can be more powerful for innovation than a complete corporate overhaul.”
The study looked at 5,863 high tech acquisitions executed between 1990 and 2014, using both patent records and citations to measure innovation output. In instances where inventor commingling was strong (that is, where inventors from both sides collaborated closely), the startups’ innovation output rose significantly, with up to 15.7% more patents and 9.8% more forward citations, even when the startup was fully absorbed into the parent company.
“When a company buys a startup, combining the two can either spark innovation or accidentally shut it down…Our research shows that the simple act of putting inventors from both companies in the same room can be more powerful for innovation than a complete corporate overhaul.”
The secret to this boost is the transfer of organizational knowledge: tacit information about norms, processes, and decision-making that is rarely captured in manuals or structures but is crucial to how companies operate. When inventors collaborate directly, they not only share technical ideas but also absorb each other’s ways of working.
This is further demonstrated in the study’s finding that positive effects were most pronounced when the inventors from the acquiring company had long tenure, meaning they brought deeper knowledge of how their organization works. These experienced inventors acted as “integration ambassadors,” helping bridge the cultural and operational divide between the two companies. In contrast, commingling with short-tenured inventors had less impact, unless paired with formal structural integration, which can provide scaffolding for knowledge transfer.
This research has direct implications for both acquirers and startups. Rather than relying solely on formal restructuring, companies can design lighter-touch integration strategies focused on inventor collaboration. For startups, it suggests a path to retaining their innovative edge post-acquisition. For acquiring firms, it offers a way to realize the full value of a deal without compromising the very capabilities that made the startup attractive in the first place.
“Inventor commingling offers a ‘middle path’ in acquisitions, preserving the startup’s creativity while unlocking the resources and knowledge of the larger firm.”
“Inventor commingling offers a ‘middle path’ in acquisitions,” said Hsu. “It preserves the startup’s creativity while unlocking the resources and knowledge of the larger firm.”
Read the full paper, Inventor Commingling and Innovation in Technology Startup Acquisitions, here.