The effects of intra-industry and extra-industry networks on performance: A case of venture capital portfolio firms

This study examines the influence of intra-industry and extra-industry networks on firm performance by using data on 1264 UK venture-capital-backed start-up companies. The venture's network was operationalized by connecting together the various portfolio companies sharing the same investor. Regression results show that the venture's network has a strong impact on firm's success. Yet, whereas extra-industry ties are directly and positively linked to the likelihood of the venture to reach a successful exit, intra-industry ties exert a negative impact on companies' performances. However, interaction effects show that once a firm establishes a sufficient number of extra-industry ties, it is able to profit from the network in its industry of operation. Overall, these findings show that an optimal balance of ties is achieved through a diverse set of connections incorporating both intra-industry and extra-industry ties

Ban, Boom, and Echo! Entrepreneurship and initial coin offerings

This is the author accepted manuscript. The final version is available from SAGE Publications via the DOI in this recordRegulatory spillovers occur when regulation in one country affects either the expected regulatory approach and/or entrepreneurial finance markets in other countries. Drawing on institutional theory, we investigate the global implications of a regulatory spillover on entrepreneurship. We argue that regulatory spillovers have both short- and long-term effects on the number and quality of entrepreneurial finance initiatives such as Initial Coin Offerings (ICOs). Based on a large-scale sample of ICOs in 108 countries, we find that a regulatory ban of ICOs in one country causes a short-term increase in the number of low-rated ICOs in other countries and a long-term drop in the number of ICOs, especially low-rated, which increases the average ICO rating. That is, a restrictive regulation triggered a process of increased market selection

Mitigating agency risk between investors and ventures’ managers

The general management literature has long focused on the agency risks involved in the relationship between general managers and shareholders. Shareholders can deploy contractual and non-contractual mechanisms to reduce these inefficiencies. This study examines - based on a broad international sample of investment contracts - how the use of contractual and non-contractual mechanisms is related to the degree of risks associated with the venture’s development stage as well as how these practices differ across countries. Hypotheses are tested using a proprietary dataset of 265 hand-collected investment contracts associated with ventures in the U.S., Israel and nine European countries. Findings suggest that the use of mitigating contractual and non-contractual mechanisms is related to the degree of agency risks, and that these practices vary across countries. This study draws implications for how investors can best deploy their capital in different institutional settings whilst nurturing their relationships with managers and entrepreneurs

Mitigation of Moral Hazard and Adverse Selection in Venture Capital Financing: The Influence of the Country’s Institutional Setting

A venture capitalist (VC) needs to trade off benefits and costs when attempting to mitigate agency problems in their investor-investee relationship. We argue that signals of ventures complement the VC’s capacity to screen and conduct a due diligence during the pre-investment phase, but its attractiveness may diminish in institutional settings supporting greater transparency. Similarly, whereas a VC may opt for contractual covenants to curb potential opportunism by ventures in the post-investment phase, this may only be effective in settings supportive of shareholder rights enforcement. Using an international sample of VC contracts, our study finds broad support for these conjectures. It delineates theoretical and practical implications for how investors can best deploy their capital in different institutional settings whilst nurturing their relationships with entrepreneurs

Darwinism, organizational evolution and survival: key challenges for future research

How do social organizations evolve? How do they adapt to environmental pressures? What resources and capabilities determine their survival within dynamic competition? Charles Darwin’s seminal work The Origin of Species (1859) has provided a significant impact on the development of the management and organization theory literatures on organizational evolution. This article introduces the JMG Special Issue focused on Darwinism, organizational evolution and survival. We discuss key themes in the organizational evolution research that have emerged in recent years. These include the increasing adoption of the co-evolutionary approach, with a particular focus on the definition of appropriate units of analysis, such as routines, and related challenges associated with exploring the relationship between co-evolution, re-use of knowledge, adaptation, and exaptation processes. We then introduce the three articles that we have finally accepted in this Special Issue after an extensive, multi-round, triple blind-review process. We briefly outline how each of these articles contributes to understanding among scholars, practitioners and policy makers of the continuous evolutionary processes within and among social organizations and systems

The effects of prior co-investments on the performance of venture capitalist syndicates: A relational agency perspective

Research Summary: This study provides a reconciliation of previous findings regarding the effects of prior co-investments among venture capitalists (VCs) and the performance of VC syndicates. We propose a relational agency framework outlining cost–benefit trade-offs associated with prior co-investments between VCs. A longitudinal study of 4,550 U.S. ventures receiving syndicated investments from 1980 to 2017 shows that there exists an inverted U-shaped relationship between the number of prior co-investments and a venture's likelihood of a successful exit through initial public offering or merger and acquisition. We further find that the relationship between prior co-investments and syndicate performance is moderated by venture- and partner-specific risks. / Managerial Summary: We study the effects of prior co-investments among venture capital (VC) firms on the performance of VC syndicates. We propose a framework outlining cost–benefit trade-offs associated with prior co-investments between VCs. A study of 4,550 U.S. ventures receiving syndicated investments shows that there exists an inverted U-shaped relationship between the number of prior co-investments and a venture's likelihood of a successful exit through initial public offering or merger and acquisition. Our findings hold implications for managers considering whom to partner with for future co-investments and the conditions under which prior co-investments are more or less likely to be beneficial

Platform Strategy: Managing Ecosystem Value Through Selective Promotion of Complements

Platform sponsors typically have both incentive and opportunity to manage the overall value of their ecosystems. Through selective promotion, a platform sponsor can reward successful complements, bring attention to underappreciated complements, and influence the consumer’s perception of the ecosystem’s depth and breadth. It can use promotion to induce and reward loyalty of powerful complement producers, and it can time such promotion to both boost sales during slow periods and reduce competitive interactions between complements. We develop arguments about whether and when a platform sponsor will selectively promote individual complements, and test these arguments on data from the console video game industry in the United Kingdom. We find that platform sponsors do not simply promote “best in class” complements; they strategically invest in complements in ways that address complex tradeoffs in ecosystem value. Our arguments and results build significant new theory that helps us understand how a platform sponsor orchestrates value creation in the overall ecosystem