Startup innovation in the digital era

Abstract Research Summary Because invention activities involve accessing, identifying, and recombining relevant prior art, startups confront significant search cost and effort. Using Google Patents's 2006 digitization of inventive records as a natural experiment, we examine how digitization affects the directionality and nature of entrepreneurial innovation. We analyze 17,664 US‐based startups in the life sciences industry and find that digitization increases the quantity and quality of prior art used as innovation inputs and those of patent applications generated as innovation outputs. Moreover, our findings indicate that digitization enables startups to transcend local searches for relevant inputs and increase both their entry into new technological domains and output utility. Our study sheds new light on how digitization and its search functionalities reshape startup innovation in the digital era. Managerial Summary Google Patents's 2006 digitization of inventive records transformed entrepreneurial innovation in the US Analyzing 17,664 life sciences startups, we find that digitization enhances search efficiency by alleviating constraints in accessing knowledge while boosting search effectiveness by improving inventive experimentation as online search features make identifying and utilizing relevant external knowledge timelier and more precise. Digitization enables startups to utilize greater volume, higher quality, and more diverse knowledge from prior art while also reinforcing invention outcomes, expanding into new technological domains, and generating more impactful inventions. This study highlights how digitization democratizes access to knowledge and improves search effectiveness and entrepreneurial experimentation, ultimately transforming the startup innovation landscape. Overall, digitization disproportionately benefits startups in areas geographically remote from physical knowledge repositories.