Generative AI and Firm-level Productivity: Evidence from Startup Funding Dynamics

Abstract

New general-purpose technologies have the potential to fundamentally change the dynamics of entrepreneurial firms. This paper provides new evidence on the impact of Generative AI on startup productivity: We argue that valuable but non-exclusive technological innovations can be a source of competitive advantage if entrepreneurs leverage them as complementary assets to their existing skill set. To show this, we exploit the release of GitHub Copilot as a quasi-natural experiment affecting software-developing startups. We find a significant reduction in the time-to-initial-funding, an early-stage productivity indicator, by about 20% relative to comparable startups. These effects are strongest for startups whose founders have more technological or managerial experience. Our analysis highlights the considerable implications of GenAI as a new resource available to decision-makers, shaping startup dynamics and productivity.

Keywords: JEL Classification: G24, O31, O33, D24 Generative AI, startup productivity, entrepreneurial finance, technological innovation, complementarities