Investment Ties Gone Awry

Kourosh Shafi, Ali Mohammadi, Sofia A. Johan

Research output: Contribution to journalJournal articleResearchpeer-review

Abstract

Forming early relationships increases entrepreneurial ventures’ chances of survival and success by allowing access to critical resources from partners. However, since not all ventures achieve their desired goals through collaboration due to uncertainty, such relationships are sometimes abandoned. This paper investigates the costs of ties that have gone awry in the context of venture capital investments. We conjecture that the adverse perceptions of signals associated with tie discontinuation reduce an investee venture’s valuation in the follow-on round of financing by partially deterring prospective investors, particularly higher-quality ones, from joining the syndicate. By examining large-sample evidence that supports our theory, we suggest that early entrepreneurial ties to venture capitalists may be a double-edged sword, especially in light of the costs of tie discontinuation.
Original languageEnglish
JournalAcademy of Management Journal
Volume63
Issue number1
Pages (from-to)295-327
Number of pages33
ISSN0001-4273
DOIs
Publication statusPublished - Feb 2020

Bibliographical note

Published online: 7. February 2019

Keywords

  • Topic areas
  • Entrepreneurship
  • Financing of new ventures
  • Organization and management theory
  • Interorganizational linkages
  • Reputation
  • Research methods
  • Research design
  • Cross-sectional
  • Analysis
  • Traditional

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