Abstract: We examine the relationship between diversification and performance in the example of knowledge-intensive firms, specifically venture capitalist (VC) firms. Drawing on the knowledge and organizational learning literature, we discuss how the diversification level of knowledge in a VC firm affects 1) its ability to efficiently develop and leverage companies it invests in; 2) its ability to solve complex problems and develop novel solutions; and 3) its ability to develop a company down a variety of different trajectories. We find that there is a U shaped relationship between VC diversification and performance. Uncertainty plays an important role in this relationship. When uncertainy is highest (i.e., early stage investing, no co-investors), the effects are most pronounced.

Abstract: This paper examines the ability of entrepreneurs to accurately potential venture capital investors. Although there has been significant research on how experienced actors use social network ties and status to accurately evaluate potential partners, relatively little attention has been given to the evaluation abilities of less-experienced entrepreneurs. In this paper, I develop a theory considering how entrepreneurs may be mislead by their own inexperience, while also considering the guidance they may receive from third party intermediaries. I empirically test and find support for these logics in a study of entrepreneurs posting anonymous evaluations of venture capitalists to an online forum. Overall, I find that even though entrepreneurs may be limited in their ability to directly evaluate potential partners, the guidance of intermediating brokers may save entrepreneurs from their own limitations.

Abstract: There have been extensive studies on impact of founders’ career history on formation of new ventures (Beckman, 2006; Eisenhardt & Schoonhoven, 1990). Some studies find that founders’ individual reputation can foster new venture’s formation. Some other studies find that reputation of founders’ prior affiliation is positively related to success of new venture. Few studies have investigated the relative importance of these factors simultaneously. This study argues that both individual reputation and prior affiliation’s reputation impact new venture outcome through signal mechanism. When venture capitals face different types of uncertainties, they choose different signals as indicators of quality of new ventures. Therefore, the impact of reputation on outcome of new venture is contingent on types of uncertainty.

Abstract: This essay tests whether signals are target specific. I use startups solicitation of funding from both Business Angel investors and Venture Capital firms to learn the respective roles of the legitimizing and informational interfirm signals. The study considers the structure of the signal and the differences between the two types of private equity investors, while controlling for the abilities of the startup to generate the signal. Thus, this study tests how the differences in the sender’s abilities influence the structure of the signal, and, if the signal's structure determines the type of receiver who is more likely to respond favorably to the signal.

Abstract: Cognitive legitimacy, or the perception that an organizational form or practice is appropriate, has traditionally been explained as arising slowly from the increased prevalence or that form or practice. We build on insights from cognitive psychology to suggest institutional beacons as an alternative path by which cognitive legitimacy can rapidly arise. We argue that a single, notable demonstration of actual or apparent success is often sufficient to facilitate legitimacy. We test and find support for this logic in a study of the influence of the Yale Endowment and successful venture capital investments on the foundings of venture capital firms from 1980 through 2006. Our findings and theory offer insights into the microfoundations of institutional theory and a refined model of institutional diffusion dynamics.

Abstract: This paper examines how venture capital firms respond to public market information in deciding when to make new investments. Analysis of venture capital investments between 1980 and 2006 indicates that venture capital firms tend to defer new investment projects in target industries with substantial market volatility. This delay effect of market volatility is reduced if public firms experience high demand growth or if competition among venture capital firms is severe. The paper provides further evidence to the view that venture capitalists rationally respond to market shifts in their investment decisions.