1999 by Cornell University. 0001-8392/99/4402-031 5/$1 .00.We thank Ron Burt, Rob Gertner, Steve Kaplan, Jesper Sorensen, and Olav Sorensen for many helpful suggestions. We also thank Satomi Degami and Mark Edwards of Recombinant Capital for supplying us with information on private biotechnology firms, and Joshua Lerner for providing us with the equity index used in our analysis and for his extensive comments on this paper. Seminar participants at the Sloan School of Management, Harvard Business School, Haas School of Business, and Columbia University offered many valuable suggestions for improving this paper. This paper investigates how the interorganizational networks of young companies affect their ability to acquire the resources necessary for survival and growth. We propose that, faced with great uncertainty about the quality of young companies, third parties rely on the prominence of the affiliates of those companies to make judgments about their quality and that young companies "endorsed" by prominent exchange partners will perform better than otherwise comparable ventures that lack prominent associates. Results of an empirical examination of the rate of initial public offering (IPO) and the market capitalization at lP0 of the members of a large sample of venture-capital-backed biotechnology firms show that privately held biotech firms with prominent strategic alliance partners and organizational equity investors go to lP0 faster and earn greater valuations at lP0 than firms that lack such connections. We also empirically demonstrate that much of the benefit of having prominent affiliates stems from the transfer of status that is an inherent byproduct of interorganizational associations.' Mobilizing resources to build a new organization is an undertaking laden with uncertainty and unforeseeable hazards (Stinchcombe, 1965; Aldrich and Auster, 1986; Freeman, 1997). It is also inherently a social process, because entrepreneurs must access financial and social capital and other types of resources via business relationships with parties outside of the boundaries of their organizations. Because the quality of a new venture is always a matter of some debate, however, the decision of external resource holders to invest their time, capital, or other resources in a new organization is one that must be made under considerable uncertainty about the embryonic enterprise's life chanrces and its financial prospects. This paper investigates how interorganizational relationships, by shaping potential investors' assessments of the quality of young companies, affect those firms' ability to obtain the resources to survive.Interorganizational exchange relationships can act as endorsements that influence perceptions of the quality of young organizations when unambiguous measures of quality do not exist or cannot be observed. As a result, the valuations of young firms are at times attributions influenced by the characteristics of the affiliates of the companies under scrutiny. Because strong relationships with prominent organiza...

This paper investigates the relationship between intercorporate technology alliances and firm performance. It argues that alliances are access relationships, and therefore that the advantages which a focal firm derives from a portfolio of strategic coalitions depend upon the resource profiles of its alliance partners. In particular, large firms and those that possess leading‐edge technological resources are posited to be the most valuable associates. The paper also argues that alliances are both pathways for the exchange of resources and signals that convey social status and recognition. Particularly when one of the firms in an alliance is a young or small organization or, more generally, an organization of equivocal quality, alliances can act as endorsements: they build public confidence in the value of an organization's products and services and thereby facilitate the firm's efforts to attract customers and other corporate partners. The findings from models of sales growth and innovation rates in a large sample of semiconductor producers confirm that organizations with large and innovative alliance partners perform better than otherwise comparable firms that lack such partners. Consistent with the status‐transfer arguments, the findings also demonstrate that young and small firms benefit more from large and innovative strategic alliance partners than do old and large organizations. Copyright © 2000 John Wiley & Sons, Ltd.

March, and Mike Tushman for many helpful suggestions. Olav Sorenson provided particularly extensive comments on this paper. We are grateful for the financial support of the University of Chicago, Graduate School of Business and a grant from the Kauffman Center for Entrepreneurial Leadership. We use both of these terms narrowly throughout the paper. Organizational competence refers to the capacity of the firm to produce innovations, regardless of the broader acceptance or quality of these new technologies. Environmental fit refers to the match between the firm's innovations and the current state of the art, as well as to the receptivity of other producers to the organization's new technologies.

Sociological investigations of economic exchange reveal how institutions and social structures shape transaction patterns among economic actors. This article explores how interfirm networks in the U.S. venture capital (VC) market affect spatial patterns of exchange. Evidence suggests that information about potential investment opportunities generally circulates within geographic and industry spaces. In turn, the circumscribed flow of information within these spaces contributes to the geographic-and industry-localization of VC investments. Empirical analyses demonstrate that the social networks in the VC community-built up through the industry's extensive use of syndicated investing-diffuse information across boundaries and therefore expand the spatial radius of exchange. Venture capitalists that build axial positions in the industry's coinvestment network invest more frequently in spatially distant companies. Thus, variation in actors' positioning within the structure of the market appears to differentiate market participants' ability to overcome boundaries that otherwise would curtail exchange.

The question of how initial resource endowments-the stocks of resources that entrepreneurs contribute to their new ventures at the time of founding-affect organizational life chances is one of significant interest in organizational ecology, evolutionary theory, and entrepreneurship research. Using data on the life histories of all 134 firms founded to exploit MIT-assigned inventions during the 1980-1996 period, the study analyzes how resource endowments affect the likelihood of three critical outcomes: that new ventures attract venture capital financing, experience initial public offerings, and fail. Our analysis focuses on the role of founders' social capital as a determinant of these outcomes. Event history analyses show that new ventures with founders having direct and indirect relationships with venture investors are most likely to receive venture funding and are less likely to fail. In turn, receiving venture funding is the single most important determinant of the likelihood of IPO. We conclude that the social capital of company founders represents an important endowment for early-stage organizations.Entrepreneurship, Social Capital, Financing

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The assumption that 'local search' constrains the direction of corporate R&D is central in evolutionary perspectives on technological change and competition. In this paper, we propose a network-analytic approach for identifying the evolution of firms ' technological positions. The approach (I) permits graphical and quantitative assessments of the extent to which firm s ' search behavior is locally bounded, and (2) enables firms to be positioned and grouped according to the similarities in their innovative capabilities. The utility of the proposed f ramework is demonstrated by an analysis of strategic pa rtnering and the evolution of the technological positions of the 10 largest Japanese semiconductor producers fro m 1982 to 1992.

Sociological investigations of economic exchange reveal how institutions and social structures shape transaction patterns among economic actors. This article explores how interfirm networks in the U.S. venture capital (VC) market affect spatial patterns of exchange. Evidence suggests that information about potential investment opportunities generally circulates within geographic and industry spaces. In turn, the circumscribed flow of information within these spaces contributes to the geographic-and industry-localization of VC investments. Empirical analyses demonstrate that the social networks in the VC community-built up through the industry's extensive use of syndicated investing-diffuse information across boundaries and therefore expand the spatial radius of exchange. Venture capitalists that build axial positions in the industry's coinvestment network invest more frequently in spatially distant companies. Thus, variation in actors' positioning within the structure of the market appears to differentiate market participants' ability to overcome boundaries that otherwise would curtail exchange.