Performance feedback as a cooperation “switch”: A behavioral perspective on the success of venture capital syndicates among competitors

Abstract

Research Summary: This study draws on the performance feedback theory to advance a behavioral perspective on the dynamics of cooperation among competitors in venture capital (VC) syndicates. Analyzing VC syndicates over a 33‐year period, I find that firms’ performance relative to historical and social aspirations acts as a switch in firms’ behavior with respect to dual goals of cooperation and competition in syndicates with competitors. Competition among firms in a syndicate negatively affects the probability of an IPO, but syndicates composed of firms underperforming their aspirations have a better chance of an IPO than syndicates of firms outperforming their aspirations, ceteris paribus. This effect is stronger when firms’ goals in a syndicate are symmetrical or when firms’ motivations based on both historical and social aspirations are aligned. Managerial Summary: Competition among VC syndicate members negatively affects a syndicate’s prospects of achieving an IPO because syndicate members hold back resources for fear of their appropriation by competing partners. However, firms underperforming their track record or peer firms shift their priorities toward syndicate success and allocate more resources to their syndicates, thereby reducing the negative effect of competition. These results suggest that start‐up companies seeking VC investors, VC firms seeking co‐investors, and limited partners providing funds to VC firms all need to look beyond the capabilities of VC firms in a syndicate or their complementarity and also consider firms’ relative performance. VC syndicates comprised of firms striving to correct temporary underperformance are likely to show superior results due to those firms’ added motivation.

Following in Partners’ Footsteps: An Uncertainty‐Reduction Perspective on Firms’ Choice of New Markets

“…To construct this variable, we utilize data on the syndication of VC investments. In line with prior studies (e.g., Makarevich, 2018;Zhelyazkov and Gulati, 2016), we identify two VC firms as coinvestors if they invested in the same start-up. From the data on individual investment rounds, we identify a focal VC's partners as their co-investors during the past five years.…”

Coopetition within the entrepreneurial ecosystem: startups’ entrepreneurial learning processes and their implications for new venture performance

“…Performance is regarded as a major dependent variable in the field of coopetition and strategy (Bendig et al , 2018; Makarevich, 2018; Lan et al , 2019). In addition to the overall performance, some studies are focusing on innovation and profitability (Estrada and Dong, 2020; Park et al , 2014).…”

A Model Study Based on Social Network Relational Dimensions and Structural Dimensions

“…, where S x and S y are, respectively, the investment phase vectors of a pair of institutions x and y 5 years before the alliance; N k is the number of all possible bilateral associations. Complementarity is a continuous variable between the values "0" and "1"; higher values indicate greater complementarity [19]. Group tie density.…”