Forming early relationships increases entrepreneurial ventures’ chances of survival and success by allowing access to critical resources from partners. However, since not all ventures achieve their desired goals through collaboration due to uncertainty, such relationships are sometimes abandoned. This paper investigates the costs of ties that have gone awry in the context of venture capital investments. We conjecture that the adverse perceptions of signals associated with tie discontinuation reduce an investee venture’s valuation in the follow-on round of financing by partially deterring prospective investors, particularly higher-quality ones, from joining the syndicate. By examining large-sample evidence that supports our theory, we suggest that early entrepreneurial ties to venture capitalists may be a double-edged sword, especially in light of the costs of tie discontinuation.
We investigate firms' pre-IPO corporate activity. We find that firms involved in extraordinary – i.e., beyond momentum – amounts of acquisitions, JVs, and alliances in the year leading up to their IPOs (1) are more likely to engage in post-IPO corporate activity; and (2) enter into their first post-IPO transaction twice as fast as other firms. Our results indicate that signaling via extraordinary corporate activity can have a significant effect on entrepreneurial firms’ growth. The implications are discussed.
This paper investigates gender differences in the behavior of investors in firms seeking equity financing. Using data from Swedish equity crowdfunding platform– FundedByMe, we find that female investors are less likely to invest in the equity of younger firms, high-technology firms, and firms with a higher percentage of equity offerings. This pattern seems consistent with a greater risk-aversion in female investors compared to male investors. Furthermore, female investors are more likely to invest in projects in which the proportion of male investors is higher.
This study replicates Dushnitsky and Shaver (2009) and examines the conditions that facilitate inter-organizational relationships. We consider the role played by legal defenses in encouraging the formation of ties between new ventures and same-industry corporate venture capitalists, and we enrich our analysis by considering timing and social defenses, as suggested in the “swimming with sharks” literature. Whereas all prior findings have been based on data on U.S. new ventures, we assess the effectiveness of these defenses in a different institutional setting, i.e. the European venture capital market. Legal defenses in Europe are shown to be as effective as they are in the U.S., social defenses are effective only as a complement to legal defenses, and timing defenses are ineffective.
We investigate how public policies related to product market regulation (PMR) influence the ability of European young venture-capital (VC) backed firms compared to a sample of matched non-VC backed firms to grow in size in proportion to their innovative activity. Whereas VCs can presumably offer value-added services to overcome the regulatory constraints of PMR, we find that VC-backed firms relative to non-VC backed ones are more adversely sensitive to these policies. This evidence indicates that PMR impedes the most VC-backed firms’ high- potential for innovation-driven growth.