Firm Experience and Market Entry by Venture Capital Firms (1962–2004)

Abstract

In this paper, we examine a firm's decision to enter new markets as related to the depth and breadth of its experience and the relative distance of those markets. We situate our discussion and analysis in the context of the venture capital (VC) industry, and examine whether and when US VC firms enter five high-technology investment markets through first- or later-round investments. This setting allows us to observe both the firms that chose to enter a new market and those that did not, and analyse the antecedents of these decisions. We find that VC firms overall are less likely to enter distant markets; those with broader experience are more likely to make first-round entries. In addition, VC firms with deeper investment experience are more likely to make first-round entries in proximate markets and less likely to enter distant markets and make later-round entries. These results offer interesting implications for the literature on organizational learning and entrepreneurship. Copyright (c) 2009 Blackwell Publishing Ltd and Society for the Advancement of Management Studies.

Following in Partners’ Footsteps: An Uncertainty‐Reduction Perspective on Firms’ Choice of New Markets

“…We measure the extensiveness of a VC firm's experience by the total number of rounds of investment that the firm has made prior to a given year. This measure has been used in prior studies to measure the operating experience of organizations that lead to experiential learning (Dimov and Martin de Holan, ; Ingram and Baum, ; Tuschke et al, ) and is thus most appropriate for our purposes.…”

“…This characteristic makes them more prone to enter new markets compared to inexperienced firms (King and Tucci, ). In the VC industry, Dimov and Martin de Holan () likewise found that experience predisposes VC firms to enter new investment markets.…”

Determinants of early entry: governance choices and syndicate networks in US venture capitals' Internet investments

“…When making new investments, VC firms face choices between staying in the existing markets and entering new markets (Dimov & Martin de Holan, 2010), that is, investing in companies that operate in the industries in which the VC firms had not invested previously. VC firms confront greater uncertainty about the ultimate nature of technology and customers' needs in the market's initial stages when they enter into an emerging industry.…”

Persistently learning: How small-world network imprints affect subsequent firm learning

“…Our dependent variable is the exploratory learning of VC firms, which was measured by a dummy variable indicating whether a VC firm entered a new industry in which it had never invested before in year t + 1. Prior research has used a VC firm's entry into a new industry to indicate firm exploration (Dimov and Martin de Holan, 2010). As discussed by Dimov and Martin de Holan (2010), firm exploration can be only understood as newness or search for new ideas in relation to a focal firm's specific activities or domains.…”