Constraints on the Control Benefits of Brokerage: A Study of Placement Agents in U.S. Venture Capital Fundraising

Abstract

This paper theorizes about constraints on brokers' control benefits. I propose that brokers prefer to represent high-quality actors and that the value an actor places on representation is inversely related to the actor's perceived quality. But matching of more reputable brokers with higher-quality actors should mitigate these quality constraints. Empirical analyses of 1,028 venture capital funds raised by 745 firms from 2001 to 2006 support the theory. The likelihood that a firm's venture fund is represented by a placement agent first increases and then decreases with firm quality, measured as size, experience, and status. Neither those that value representation most (i.e., funds of low perceived quality) nor those that placement agents would most like to represent (i.e., funds of high perceived quality) are most likely to be represented by a placement agent. Results also show that more reputable placement agents represent funds raised by higher-quality firms, which indicates that a broker's reputation mitigates constraints on the control benefits of brokerage.

Inherited agglomeration effects in hedge fund spawns

“…However, for fund‐of‐funds, which only invest in other hedge funds, knowledge of investment strategies, particularly the implementation of such strategies, is somewhat less important. At the same, time, social capital continues to play a crucial role in building relationships with direct investment funds and investors (Rider, ). Therefore, if we find evidence for inherited agglomeration effects for direct investment funds but not for fund‐of funds, it would suggest that inherited agglomeration effects are mainly driven by trading knowledge spilling over; whereas if we find both direct investment funds and fund‐of‐funds experience inherited agglomeration effects that would suggest that social capital accumulation is the key mechanism behind inherited agglomeration effects.…”

Entrepreneurial orientation as a driver of brokerage in external networks: Exploring the effects of risk taking, proactivity, and innovativeness

“…First, the benefits of brokerage are mainly based on controlling the resource exchanges between one's own partners (Burt, ; Stuart & Sorenson, ). In other words, brokers' key advantage is represented by their autonomy to determine how privileged resources are used and which partner will be included in or excluded from a brokered exchange (Rider, ). However, manipulating the resource exchange between otherwise disconnected partners or even deliberately keeping partners apart from each other will be risky to the degree that the broker's partners may take counteractions when realizing the strategic intent of the broker.…”

After the Break-Up: The Relational and Reputational Consequences of Withdrawals from Venture Capital Syndicates

“…We addressed this issue in two ways. First, we controlled for the Lincoln Autoregressive Term, first proposed by Lincoln (1984) and frequently used to alleviate dyadic autocorrelation in tie formation studies (Rider, 2009;Stuart, 1998;Sytch & Tatarynowicz, 2014b). It is based on the mean value of the dependent variable across all dyads involving either of the VCs in the dyad for the focal year, but excluding the focal dyad.…”