No News Is Bad News: Sensegiving Activities, Media Attention, and Venture Capital Funding of New Technology Organizations

Abstract

A significant body of research has examined how new organizations gain legitimacy and how gaining it affects their subsequent access to resources. Less attention has been given to the problem of how new organizations attract collective attention. Although related to legitimation, the problem of attracting attention is distinct, as attention and evaluation are distinct cognitive processes. In this study, we examine the allocation of collective attention to new organizations in a system of relationships, within which new organizations seek to attract attention through their sensegiving activities; the information properties of their sensegiving activities affect the level of attention they receive from different types of media; and media attention, in turn, increases their perceived value potential in the eyes of venture capital investors (VCs). We examine these relationships in a sample of 398 information-technology start-ups that have obtained different levels of venture capital funding. Our results show that new organizations that engage in more intense and diverse sensegiving activities attract higher levels of industry media attention and that these effects are enhanced by the human capital of their founders and leaders. Diverse sensegiving activities are also associated with higher levels of attention from the general media, but only the attention of specialized industry media is positively associated with the level of VC funding obtained. These findings extend current research on information intermediation and institutional legitimation by demonstrating that media attention early in the life of new organizations affects how they are valued by a well-informed expert audience, such as VCs. They also contribute to entrepreneurship research on the effects of new organizations’ strategies on their ability to secure resources and to research on VC funding decisions.

Technological start-ups in the innovation system: an actor-oriented perspective

“…This is in accordance with the findings of Petkova, Rindova, and Gupta (2013), who found that start-ups try to get media attention through sensemaking activities in order to gain legitimation for their innovation. Subsequently, this legitimation process helps them to get investments from Venture Capitalists.…”

The Signaling Effect of Corporate Social Responsibility in Emerging Economies

“…The media plays an important role in circulating information in external environments (Deephouse 2000;Kennedy 2008;Petkova et al 2012;Zavyalova et al 2012). Through its own bandwidth and outlets, media can create dynamic communication with stakeholders in terms of disclosure or surveillance (Barry and Fulmer 2004).…”

How to Judge What Can’t be Seen and Touched? The Contingent Effect of Media Reputation on Young Firms’ Access to Venture Capital

“…More recent research shows that this is particularly true for young firms, which often experience an 'attention deficit' problem due to their small size and limited resources (Aldrich, 2000;Aldrich and Fiol, 1994). Unlike old and established organizations that sometimes receive more public attention and scrutiny than they desire (Rhee and Haunschild, 2006;Wade et al, 2008;Whittington and Yakis-Douglas, 2012), young firms face the opposite problem -they struggle to even get noticed and typically face great challenges in attracting the much needed attention and support of various stakeholders, such as prospective employees, investors, customers, and partners (Lounsbury and Glynn, 2001;Petkova, 2012;Petkova et al, 2013). Given the challenges that young firms face in attracting stakeholder attention and support, receiving media coverage can be highly beneficial for them (Berger et al, 2010;Petkova et al, 2013).…”

“…Unlike old and established organizations that sometimes receive more public attention and scrutiny than they desire (Rhee and Haunschild, 2006;Wade et al, 2008;Whittington and Yakis-Douglas, 2012), young firms face the opposite problem -they struggle to even get noticed and typically face great challenges in attracting the much needed attention and support of various stakeholders, such as prospective employees, investors, customers, and partners (Lounsbury and Glynn, 2001;Petkova, 2012;Petkova et al, 2013). Given the challenges that young firms face in attracting stakeholder attention and support, receiving media coverage can be highly beneficial for them (Berger et al, 2010;Petkova et al, 2013). Because the vast majority of young firms lack the resources to engage in advertising, PR campaigns, or other forms of corporate communications (Aldrich, 2000;Petkova et al, 2008), the media often serve as the main source of reputation for them (Petkova, 2012;.…”

“…The media augment the small-scale communications and outreach of young firms by making publicly available the information about their innovations and organizational activities (Petkova et al, 2013;. Large-scale public awareness and availability of information are critical for the public acceptance of young firms (Aldrich and Fiol, 1994;Kennedy, 2008;Pollock et al, 2008) and for the success of the new products and technologies they introduce (Rosa et al, 1999).…”