Partner Selection under Uncertainties and Venturing Success:Evidence from Venture Capital investments
Date Issued
2011
Date
2011
Author(s)
Cheng, Chun-Yun
Abstract
Venture Capital (VC) typically finances specific ventures under plenty of
uncertainties since rare public information is available as public listed companies. The
uncertainty leads to information asymmetries and agency problems when the entrepreneurs
who have private information on their business but often overstate the future profitability to
secure the supply of financial capital from the VCs. One of the reasons for the VC industry to
exist is to reduce information asymmetries and agency costs between entrepreneurs and
investors. Traditional agency theory has been adopted to prescribe actions that focus on the
protection of the investment of the principals (VCs) against the harmful behavior of the
agents (entrepreneurs). Nevertheless, the emergence of syndication networks and the
involvement of multiple parties in the VC investment motivate us to extend the
principal-agent analysis to a multiple principal-agency framework to reason the organizing
behavior of VC investments and their consequential performance.
To develop theoretical arguments for hypotheses construction, this dissertation starts
with spatial uncertainties at the industrial and the geographic dimensions that the VC
confronts, explains the difficulty to reduce information asymmetries when industrial and
geographic uncertainties exists. Using a comprehensive dataset of U.S. VC investments from
1980 and 2008, we find that existence of industrial and geographic uncertainties affect
negatively on the performance of VC investments. Next, we develop a multiple
principal-agency framework to analyze the alignment of goals and the alignment of actions
deriving from cooperation and coordination as well as the influence of complementary
resources determining the strategy of partner selection and performance outcomes for both
IVCs and CVCs. Our empirical results suggest that, other things being equal, the preference
to select IVCs as partners leads to superior performance for both IVCs and CVCs
investments.
Smart partner selection in the formation of interfirm relationships may reduce spatial
limitations and lead to superior investment performance. The results in this dissertation show
that superior performance in the IVC investment project with industrial uncertainties stems
from a high tendency to syndicate with CVCs to access the corporate specific complementary
resources and capabilities. Moreover, to obtain superior performance in the investment
project with geographic uncertainties, the CVC investment should has a high propensity to
syndicate with the other CVCs to facilitate coordination activities or reduce competitive
intensity.
Subjects
partner selection
uncertainty
venture capital investment
syndication network
Type
thesis
File(s)![Thumbnail Image]()
Loading...
Name
ntu-100-D95724005-1.pdf
Size
23.32 KB
Format
Adobe PDF
Checksum
(MD5):61297fc1c274eb16d97ea289d5c1d633