Signals across Multiple Networks: How Venture Capital and Alliance Networks Affect Interorganizational Collaboration

Abstract

In this article, we examine the contingent effects of signals generated by different types of networks on new ventures' formation of future strategic alliances. We argue that the signaling value of a given tie in reducing adverse selection is more pronounced when another type of tie is lacking. In particular, we suggest that signals associated with (i) a new venture's affiliations with venture capitalists (VCs) that have prominent positions in syndicate networks and (ii) a new venture's prominent position in alliance networks resulting from previous alliances offer redundant benefits. As a result, the positive effect of VC prominence in determining a new venture's future alliance formation diminishes as the new venture's prominence in alliance networks increases. Evidence from biotech alliances between new ventures and established companies provides support for our theory.

Partner Selection in R&D Collaborations: Effects of Affiliations with Venture Capitalists

“…At a broad level, we therefore complement previous research on partner selection that examined the signaling role of VCs (e.g., Hsu, 2006;Ozmel et al, 2013) by investigating the information intermediary role of the VCs. In particular, we argue and show that information intermediation of VCs helps prospective partners learn about the underlying quality of each other's technological resources and activities, and it is particularly valuable for entrepreneurial…”

“…acquisitions, and partnerships (e.g., Stuart et al, 1999;Gulati and Higgins, 2003;Chang, 2004;Hsu, 2006;Ozmel et al, 2013). We build upon and advance this research by demonstrating the influence of VCs in intermediating relationships with exchange partners by functioning as credible third-parties who privately and directly reduce information asymmetries between prospective partners and influence partner selection for R&D alliances.…”

“…For example, it is well known that affiliating with prominent VCs can enable a firm to draw in many different investors as well as alliance partners based on the endorsement of these VCs (e.g., Stuart et al, 1999;Gulati and Higgins, 2003;Hsu, 2006;Ragozzino and Reuer, 2007;Ozmel et al, 2013). Entrepreneurial ventures can also benefit from VC backing in a second way: startups can enter into R&D alliances by searching for potential partners within the portfolios of the VCs backing them.…”

“…Given the difficulties firms might have in understanding and evaluating the resources and prospects of potential R&D partners, VC affiliations can provide remedies to the risk of adverse selection and have important implications for who partners with whom and how markets for alliance partners become segmented in hightech industries. Prior research that investigated the role of VCs in R&D partner selection has focused on the signaling role of prominent VC affiliations in shaping firms' R&D alliance decisions (e.g., Hsu, 2006;Ozmel et al, 2013). Signals of prominent VC affiliations are widely available to exchange partners and a significant means for overcoming the hazards of information asymmetries.…”

“…First, existing research highlights the signaling role of affiliations with VCs in shaping firms' opportunities for transactions (e.g., Hsu, 2006;Ragozzino, 2012, 2014;Reuer, Tong, and Wu, 2012;Ozmel et al, 2013), yet we suggest that VCs can facilitate R&D alliances between individual prospective partners that lack first-hand knowledge about each other's technological resources. Signals can be an important means of coping with information asymmetries surrounding firms, and signals are available to all prospective exchange partners.…”