The best of both worlds: The benefits of open-specialized and open-diverse syndication networks for new venture success
File(s)
OA Location
Author(s)
ter Wal, ALJ
Alexy, O
Block, JH
Sandner, P
Type
Journal Article
Abstract
Open networks give actors non-redundant information that is diverse, while closed networks offer redundant information that is easier to interpret. Integrating arguments about network structure and the similarity of actors’ knowledge, we propose two types of network configurations that combine diversity and ease of interpretation. Closed-diverse networks offer diversity in actors’ knowledge domains and shared third-party ties to help in interpreting that knowledge. In open-specialized networks, structural holes offer diversity, while shared interpretive schema and overlap between received information and actors’ prior knowledge help in interpreting new information without the help of third parties. In contrast, actors in open-diverse networks suffer from information overload due to the lack of shared schema or overlapping prior knowledge for the interpretation of diverse information, and actors in closed-specialized networks suffer from overembeddedness because they cannot access diverse information. Using CrunchBase data on early-stage venture capital investments in the U.S. information technology sector, we test the effect of investors’ social capital on the success of their portfolio ventures. We find that ventures have the highest chances of success if their syndicating investors have either open-specialized or closed-diverse networks. These effects are manifested beyond the direct effects of ventures’ or investors’ quality and are robust to controlling for the possibility that certain investors could have chosen more promising ventures at the time of first funding.
Date Issued
2016-09-01
Date Acceptance
2015-12-16
Citation
Administrative Science Quarterly, 2016, 61 (3), pp.393-432
ISSN
1930-3815
Publisher
SAGE Publications
Start Page
393
End Page
432
Journal / Book Title
Administrative Science Quarterly
Volume
61
Issue
3
Copyright Statement
© The Author(s) 2016. This article is distributed under the terms of the Creative Commons Attribution 3.0 License (http://www.creativecommons.org/licenses/by/3.0/) which permits any use, reproduction and distribution of the work without further permission provided the original work is attributed as specified on the SAGE and Open Access page (https://us.sagepub.com/en-us/nam/open-access-at-sage).
License URL
Sponsor
Economic & Social Research Council (ESRC)
Grant Number
ES/K001159/1
Subjects
social capital
network
startups
brokerage
structural holes
closure
network diversity
actors' knowledge similarity
information redundancy
venture capital
Publication Status
Published
Date Publish Online
2016-03-02