Network Ties, Reputation, and the Financing of New Ventures

2002/03/01 by Scott Shane, Daniel M. Cable, Daniel Cable · 10 citations
Business, Management and Accounting · #Private Equity and Venture Capital #Entrepreneurship Studies and Influences #Corporate Finance and Governance

paper · doi:10.1287/mnsc.48.3.364.7731

Abstract

Explaining how entrepreneurs overcome information asymmetry between themselves and potential investors to obtain financing is an important issue for entrepreneurship research. Our premise is that economic explanations for venture finance, which do not consider how social ties influence this process, are undersocialized and incomplete. However, we also argue that organization theoretic arguments, which draw on the concept of social obligation, are oversocialized. Drawing on the organizational theory literature, and in-depth fieldwork with 50 high-technology ventures, we examine the effects of direct and indirect ties between entrepreneurs and 202 seed-stage investors on venture finance decisions. We show that these ties influence the selection of ventures to fund through a process of information transfer.

Citations

• The Sources and Consequences of Embeddedness for the Economic Performance of Organizations: The Network Effect
• Market Uncertainty and the Social Character of Economic Exchange
• The Norm of Reciprocity: A Preliminary Statement
• Interorganizational Endorsements and the Performance of Entrepreneurial Ventures
• RESEARCH NOTES. THE PAST IS THE PAST--OR IS IT? THE USE OF RETROSPECTIVE ACCOUNTS AS INDICATORS OF PAST STRATEGY.
• Economic Action and Social Structure: The Problem of Embeddedness
• Social Capital in the Creation of Human Capital

Cited by

• Gender and venture capital decision-making: The effects of technical background and social capital on entrepreneurial evaluations
• Market imperfections, opportunity and sustainable entrepreneurship
• Approaches to studying networks: Implications and outcomes
• Community-Based Resource Mobilization: How Entrepreneurs Acquire Resources from Distributed Non-Professionals via Crowdfunding
• The advantage of experienced start-up founders in venture capital acquisition: evidence from serial entrepreneurs
• The Relational Organization of Entrepreneurial Ecosystems
• Political connections and entrepreneurial investment: Evidence from China's transition economy
• Why Are Black‐Owned Businesses Less Successful than White‐Owned Businesses? The Role of Families, Inheritances, and Business Human Capital
• Drivers and Performance Implications of Frontline Employees’ Social Capital Development and Maintenance: The Role of Online Social Networks*
• CEOs' reputation, quality management and environmental innovation: The roles of stakeholder pressure and resource commitment

Related

• Exposed: Venture Capital, Competitor Ties, and Entrepreneurial Innovation
• What Do Entrepreneurs Pay for Venture Capital Affiliation?
• Dancing with Strangers? Initial Trust and the Formation of Initial Ties Between New Ventures and Corporate Venture Capitalists
• Interorganizational Endorsements and the Performance of Entrepreneurial Ventures
• The Syndication of Venture Capital Investments