This study investigates how entrepreneurial firms navigate the knowledge creation process in high-velocity arenas. Specifically, we examine how startups that are embedded in such arenas create knowledge in an effective and efficient fashion. Using an absorptive capacity process lens and drawing on a multiple case study of AI startups, we identify and explicate key mechanisms across the phases of knowledge creation. We find that in order to create knowledge effectively and efficiently, AI startups engage four key mechanisms: 1/ during acquisition, firms embed themselves in the market knowledge; 2/ during the assimilation phase, fostering serendipity integrates diverse insights; 3/ in transformation, knowledge champions accelerate reconfiguration and utilization of partners’ resources to co-develop innovations; and 4/ in exploitation, new products are commercialized in alignment with market value. We synthesize these four mechanisms into a process model of how entrepreneurial firms acquire, assimilate, transform, and exploit knowledge within a high-velocity arena. This process model provides a framework for understanding how entrepreneurial firms can successfully create knowledge in dynamic collaborations. The study contributes to the literature on absorptive capacity alongside practical implications for fostering collaborative innovation in high-velocity arenas. Keywords: knowledge creation, absorptive capacity, high-velocity arenas, artificial intelligence
