The best of both worlds: The benefits of open-specialized and open-diverse syndication networks for new venture success.

Title: The best of both worlds: The benefits of open-specialized and open-diverse syndication networks for new venture success.
Author(s): Ter Wal, ALJ
Alexy, O
Block, JH
Sandner, P
Item 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.
Publication Date: 3-Mar-2016
Date of Acceptance: 16-Dec-2015
URI: http://hdl.handle.net/10044/1/28398
DOI: https://dx.doi.org/10.1177/0001839216637849
ISSN: 1930-3815
Publisher: SAGE Publications
Start Page: 393
End Page: 432
Journal / Book Title: Administrative Science Quarterly
Volume: 61
Issue: 3
Sponsor/Funder: Economic & Social Research Council (ESRC)
Funder's Grant Number: ES/K001159/1
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).
Keywords: social capital
network
startups
brokerage
structural holes
closure
network diversity
actors' knowledge similarity
information redundancy
venture capital
Business & Management
1503 Business And Management
1505 Marketing
Publication Status: Published
Open Access location: https://dx.doi.org/10.1177/0001839216637849
Appears in Collections:Imperial College Business School



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