Do market information processes improve new venture performance?

Does market information improve new venture performance? While some researchers argue that entrepreneurs do not need formal processes to collect and use market information, others suggest that the use of formal market information processes is positively related to firm performance. In this paper, we hypothesize that new venture performance is an increasing function of (1) the firm's level of customer interaction and (2) the use of formal processes for collecting and utilizing market information. We also hypothesize that these linkages will be stronger among new ventures serving emerging markets (i.e., markets in which customer needs and segments are evolving). We test these hypotheses using data collected from 224 new ventures located in the United States. Our findings indicate that, regardless of market condition, formal processes for the collection of market information are positively associated with the use of formal processes for market information utilization and this relationship is stronger among firms serving established markets. In addition, new venture performance is positively associated with the use of formal processes for utilizing market information and this relationship is also stronger in established markets. We also find that, in emerging markets, new venture performance is a positive function of the use of formal processes for collecting market information. Contrary to expectations, we find that, regardless of market condition, the level of customer interaction has a negative relationship with the use of formal processes for market information utilization and no significant relationship with performance.     

Knowledge Acquisition Asymmetries and Innovation Radicalness

This study extends a knowledge‐based theory of opportunity discovery to innovation creation using degree of radicalness. Findings from a sample of 166 founders of new technology ventures in university incubators suggest that asymmetries in knowledge acquisition during early venture development are vital to innovation creation. Innovation radicalness was positively associated with acquiring knowledge of customer problems and markets. However, acquiring knowledge of ways to serve markets was negatively associated with innovation radicalness. This suggests a counterintuitive conclusion—the less technology entrepreneurs know about comparable offerings in the market and how to development them, the greater their chances of creating breakthrough innovations.     

Antecedents,moderators, and performance consequences of membership change in new venture teams

This paper focuses on initial team size and membership change of new venture teams in two studies: (1) a panel study of 408 emerging ventures, and (2) a cross-sectional study of 124 new ventures. The findings suggest that larger initial team size provides an advantage for new organizations, and that the benefits of adding and dropping team members are contingent on the stage of development of the organization and the dynamism of the environment. Both external environment and team composition factors are associated with turnover in venture teams.     

Technology strategy and new venture performance: A study of corporate-sponsored and independent biotechnology ventures

New ventures, companies eight years or younger, play a major role in the development of an emerging, high-technology industry. Corporate-sponsored new ventures (those supported by an established corporation) and independent ventures (those founded by independent entrepreneurs) frequently battle for industry leadership and financial success. Whereas both venture types use technology to achieve financial and market success, little is known about the differences in their technology strategies.Technology strategy is the plan that guides a new venture's decisions on the development and use of technological capabilities. This strategy covers six major areas. The first is selecting the pioneering posture, where a venture decides whether or not be among the industry's first companies to introduce new products (technologies) to the market. The second is determining the number of products to be introduced to the market. The third is choosing the extent of a venture's use of internal and external R&D sources. Internal sources usually refer to in-house R&D activities. External sources may include purchasing or licensing of technology from other companies, or joining strategic alliances to acquire that technology. The fourth is deciding the level of R&D spending. The fifth is selecting the combination (portfolio) of applied and basic research projects. Whereas basic R&D advances science, applied R&D leads to new products and technologies. The sixth, and final, dimension is the venture's use of patenting to protect any competitive advantages it might gain from its R&D activities.This article reports the results of a study that explored the differences in the technology strategies and performance of corporate and independent ventures. The biotechnology industry was chosen to test the study's hypotheses, using 112 ventures.Seven of the study's hypotheses focused on the potential variations in technology strategy between corporate and independent ventures. Independent ventures (IVs) were expected to surpass corporate ventures (CVs) in pioneering new products (technologies), using internal R&D, and emphasizing applied R&D. CVs were expected to surpass IVs in introducing new products, using external R&D sources, spending on R&D, and patenting. The study's remaining three hypotheses covered possible variations in new venture performance (NVP) and their sources.The results showed that IVs focused more on pioneering, pursued a more applied R&D portfolio, and emphasized internal R&D more than CVs. CVs utilized external technology sources, spent more heavily on R&D, stressed basic R&D, and used patenting more intensively than IVs. These results were consistent with the hypotheses. However, contrary to expectations, there were no significant differences between CVs and IVs in the frequency of new product introductions, probably because most ventures were at the invention, rather than the commercialization, stage.The results on the NVP of CVs and IVs were counter to expectations. IVs outperformed CVs, probably because of the high motivation of the IV owners who reaped the rewards of growth and profitability. Also, whereas CVs may have greater access to the resources of their sponsors, political conflicts and rigid corporate controls might have reduced their ability to achieve competitive advantages.The results also indicated that CVs and IVs appeared to gain competitive advantages from different technological choices. Pioneering, a focus on applied R&D, and extensive use of the internal R&D sources were also positively associated with the performance of IVs. Heavy R&D spending, the use of both internal and external R&D sources, frequent product introductions, and patenting were positively associated with the performance of CVs. Finding that technology strategies significantly impacted NVP should encourage executives to consider pursuing a formal technology strategy. Likewise, the finding that different dimensions of technology strategy influenced the performance of CVs and IVs in different ways has practical implications. CV managers can learn from their higher performing IV rivals. Also, because established companies frequently acquire IVs, information about their technology strategies can be valuable in assimilating the acquired ventures. Overall, the results show that technology strategy is an important factor in enhancing new venture performance.     

International versus domestic entrepreneurship: New venture strategic behavior and industry structure

International entrepreneurship is defined in this study as the development of international new ventures or start-ups that, from their inception, engage in international business, thus viewing their operating domain as international from the initial stages of the firm's operation.One hundred and eighty-eight new venture firms in the computer and communications equipment manufacturing industries are classified according to the percentage of their sales in the international market. Ventures with no sales derived from international activities are considered “domestic” new ventures, and ventures with sales from international activities comprising greater than 5% of total sales are considered “international” new ventures.The strategy and industry structure profiles of international new ventures are significantly different from domestic new ventures. The internationals pursue much broader market-based strategies, seeking a strategy of broad market coverage through developing and controlling numerous distribution channels, serving numerous customers in diverse market segments, and developing high market or product visibility. The internationals also emphasize a more aggressive entry strategy, building on outside financial and production resources to enter numerous geographical markets on a large scale. Securing patent technology is also an important component of their strategy. This suggests that the internationals compete by entering the industry on a large scale, seeking to penetrate multiple markets, with the recognition that external resources are necessary to support such an entry.Whereas both the domestics and the internationals characterize domestic competition as being relatively intense, the international new ventures compete in industries with higher levels of international competition. It is not clear from this research whether the new venture selects an industry with a high degree of international competition and therefore responds with an international orientation or, because the new venture has an international orientation, it perceives or recognizes a higher degree of international competition. Another industry structure difference is the internationals' perceived higher degree of restrictiveness due to government regulation. It is unclear whether this restrictiveness motivates new ventures to seek less-regulated international environments or if it indicates that when competing internationally, the new venture is confronted with increased regulatory requirements.Domestic new ventures are distinguished by their emphasis on a production expansion strategy and customer specialization strategy. The production specialization strategy consists of focusing on limited geographical markets, maintaining excess capacity, and pursuing forward integration. The customer specialization strategy incorporates the production of a specialty product that is purchased infrequently. Thus, for both of the domestic strategies, a consistent “closeness” between the producer and consumer is implied. This may be an important basis underlining the new venture's decision to compete in an exclusive domestic context.This study offers initial support for the notion of international entrepreneurship by its findings that there are significant differences between new venture firms competing domestically and new ventures choosing to also enter international markets.     

New venture internationalization,strategic change,and performance: A follow-up study

Although many scholars, business experts, and government agencies enthusiastically advise all firms, including new and small ventures, to internationalize, such advice does not appear to be based on empirical evidence. Few researchers have empirically examined the link between new venture performance and the internationalization of new ventures. At best, the evidence suggests that there is no significant relationship.We used a sample of 62 U.S. new venture manufacturers in the computer and communications equipment industries during the late 1980s. These industries were purportedly globalizing and may have been leading other industries into increased international operations. We found that higher levels of internationalization (percentage of foreign sales to total venture sales) were associated with higher relative market share two years later. However, there was no significant direct relationship between percentage of international sales and subsequent return on investment (ROI). Perhaps international operations simply cost more than expected. Or perhaps, as MacMillan and Day (1987) found in their study of corporate ventures over a 4-year time period, increases in market share may be a prelude to higher ROI as scale benefits translate into higher profitability. However, the 2-year time period of our study may simply not be long enough for investments in higher market shares to produce improved profits.During the 2-year study period, many of the ventures changed their level of internationalization. Of the 36 ventures who were domestic (no international sales) in the prior study, 10 expanded into international markets over the 2 years. Of the 26 originally international ventures (international sales of at least 5%), half increased their percentage of international sales, nine reduced it, and four stayed the same. Whereas the average change in international sales percentage of the ventures was only 2.9 percentage points, the large standard deviation of 13.0 percentage points, and the leptokurtic distribution (9.2) reflected the dramatic changes made by some of the ventures. Using subgroup analysis we examined these changes in percentage of international sales in conjunction with changes in strategies and performance. Ventures that had increased international sales, relative to those that had not, exhibited more positive associations between the degree of strategic change and performance as measured in terms of both relative market share and ROI. Increased international sales in technology-based new ventures seems to require simultaneous strategic changes in order to positively impact venture performance.This study is a follow-up to McDougall's (1989) finding that technology-based new ventures that had sales in foreign markets had significantly different strategies than similar ventures that sold their products only domestically. The current study enriches the previous findings by adding consideration of (1) changes in degree of internationalization, (2) changes in strategy, and (3) venture performance.Although we found no performance penalty associated with increasing international sales alone, indiscriminant advice for new ventures to sell in foreign markets without other supporting strategic actions is inconsistent with our findings. Internationalization, alone, did not lead to increased profitability.Entrepreneurs of young technology-based firms who are considering internationalization should take heed of our results. Internationalization of sales does not appear to be a simple matter of applying established strategies and procedures developed for a domestic arena. Successful internationalization appears to require changes in the venture's strategy as well.     

The anatomy of a corporate venturing program: Factors influencing success

The author proposes a classification framework for factors that affect corporate venture success. Then, a database of 37 new venture investments by Exxon, including 18 venture capital investments, is analyzed for insight into the relative affect of these factors on venture technical and financial success. This article presents a statistical analysis of those factors which were quantified.As a group the venture capital investments were financially far more successful for Exxon than the internally initiated ventures. This striking difference stimulated the retrospective analysis reported here. The author was in a position to observe the program over its entire life span and had first-hand knowledge of each venture's technology, markets, and personnel. Because of the mix of venture capital and internal investments, the author was also in a position to compare the two modes of investment.Factors affecting venture success are broadly classified as extrinsic and intrinsic. Extrinsic or environmental factors are those determined by the form of investment sponsorship (e.g., corporate or venture capital) and the characteristics of the investment sponsor. Extrinsic factors are segregated into two categories: structural and procedural. These factors are defined as the degree of difference between the corporate and venture environment in each category.The four structural factors (technology, market, organization, and people) are summed up as the overall degree of structural congruence. The author postulates that the degree of congruence is directly related to venture success within the corporation. To take the corporation into new markets some incongruence is required. Too much incongruence probably pushes the risk of failure too high. The corporation's procedures for management of this incongruence will determine the degree to which it can successfully diversify its business.The four procedural factors (control, selection of venture managers, incentive compensation, and financing) are dealt with as differences between the corporate environment and an independent venture environment. Major differences in procedural factors usually exist between corporate and venture capital sponsored ventures. They probably explain to some extent the relative greater financial success of the Exxon venture capital investments as a group. However, the statistical analysis results indicate that the identified intrinsic factors are more important in explaining relative venture success.Intrinsic factors are those inherent to the venture itself, and are subdivided into two categories: product related (market and technical risk levels) and managerial (relative experience levels). Each of the 37 Exxon ventures was rated for success and for the intrinsic factors using a simple ordinal range of 3 to 6 values. The product related risk factors showed a significant inverse correlation with financial success. The level of venture managers' prior experience in the venture's target market area and their level of prior general managerial experience showed an even greater correlation with financial success. The sample correlation coefficient between the financial success rating SF and the sum of the ratings for prior marketing and managerial experience (XS + XM) was 0.809 with a standard error of only 0.105.Selection of the influential extrinsic and intrinsic factors is largely within the control of corporate management. An approach to selection of these factors similar to that used by private venture capital fund managers should greatly improve the overall success of internal corporate ventures.     

Internationalization of emerging-economy new ventures: The role of within-country differences

New ventures are increasingly internationalizing from emerging economies, but the role of their home country and any associated within-country regional differences are not well understood. In this article, we look at a new venture in China and how its headquartered region promotes its internationalization. We present empirical evidence that shows the interrelatedness between a venture’s region and internationalization: When institutional development in a region is strong, the impact of foreign firm presence on venture internationalization becomes even stronger. We discuss implications for managers of multinational enterprises and new ventures operating in emerging economies as well as policymakers in these economies.     

International perspectives on the supply of informal venture capital

Despite major changes in the number and range of sources of finance for new and small ventures in the United Kingdom in recent years, there continues to be a shortage of risk capital for ventures actively seeking external equity finance. In the United States the informal venture capital market plays a major role in filling this equity gap, particularly in the early stages of venture development.However, there is little comparable information on the size of the informal venture capital pool in the United Kingdom or other European economies, despite recent recognition that the apparent underdevelopment of this market in the U.K. represents a major barrier to the development and growth of new ventures. This paper, therefore, presents the first analysis of the informal venture capital market in the U.K. and compares the characteristics and attitudes of U.K. informal investors with those in the U.S.The data reported in this paper have been obtained from a combination of postal survey and snowball sample techniques that generated useable information from 86 informal investors. Informal investors are playing an important role in venture financing in the U.K. in three ways: they make small scale investments in new and early stage ventures, where the equity gap is most significant; they are more permissive in their financing decisions than the formal venture capital industry in terms of having lower rejection rates, longer exit horizons, and lower target rates of return; and they invest locally and can thereby close the regional equity gap arising from the overconcentration of venture capital investment in the core South-East region in the U.K.In terms of demographics, U.K. informal investors share many of the characteristics of North American informal investors: they are predominantly male, with an entrepreneurial background, financially well-off without being super-rich, and identify investment opportunities from friends and business associates. There are a number of key differences, that may be attributable to differences in contextual factors such as personal tax regimes, regulatory environments, wealth distribution, and the structure of the formal venture capital and IPO markets. For example, U.K. informal investors are significantly older than those in the U.S. reflecting the influence of higher U.K. tax rates on the rate of capital and wealth accumulation.More generally, in comparison to U.S. investors, U.K. informal investors: have more investment opportunities brought to their attention; seriously consider more proposals but invest in no more opportunities; operate independently with syndication and joint investment relatively uncommon, reducing the average total investment per financing round available to ventures; fail to identify entrepreneurs themselves as a primary source of information on investment opportunities; have higher rate of return and capital gains expectations; are slightly less patient investors; and are rather less satisfied with the overall performance of their informal investment portfolios, reflecting intercountry and intertemporal variations in investment climate and conditions. It appears, therefore, that the general inefficiency of the informal capital market identified by Wetzel (1987) (which reflects the invisibility of informal investors, the fragmented nature of the market, and the imperfect channels of communication between investor and entrepreneur) is compounded in the U.K. case. The extent to which this reflects contextual differences on the one hand or simply a slower developmental process in the U.K. will only be common methodological basis. Based on the evidence presented in this paper, however, a key conclusion is that the information networks available to U.K. informal investors are less effective than those in North America, and in particular appear to contain lower quality information and a higher degree of redundant information. Specific forms of intervention in the market by, for example, stimulating the flow of information through the promotion of informal investment networking and brokerage services along the lines of U.S. and Canadian examples such as VCN and COIN therefore appear defensible.     

Linking prefunding factors and high-technology venture success: An exploratory study

This study reports on the exploratory phase of a research project on prefunding factors influencing the success of high-technology start-up companies. The study was done in collaboration with two major West Coast venture capital firms that allowed the authors full access to the due diligence files, investment proposals, and closing documents associated with eight ventures. Half of the eight ventures studied are currently public companies with sales that range from $65 million to $500 million and with an after-tax profit of about 10% of sales. The other half have either been dissolved or did not reach $3 million in sales within the five years following their funding.Information was obtained on those prefunding factors that were available for investor review prior to funding, such as the founders track records, the characteristics of the founding team, the nature of the target market, the technological strategy of the firm, the proposed composition of the board, and the deal structure.In spite of the small sample size, findings of this research revealed discernible differences between successful and unsuccessful firms. The founders of the successful ventures had more prior experience working together; tended to form larger, more complete teams; and had more extensive experience in the function they performed in the new venture. Successful founders also had experience in rapid growth firms that competed in the same industry as the start-up.The successful ventures targeted product-market segments with high buyer concentration in which, through technological advantage, their products could attain and sustain a competitive edge. Often this advantage was achieved by careful management of the product-development process, which resulted in early market entry and its corollary, reduced competition.On the other hand, some factors that the authors had predicted would allow them to distinguish between success and failure were not found to do so. Both successful and unsuccessful ventures targeted high growth markets, anticipated high gross margins, had founders with over five years of relevant experience, had experienced venture capitalists on their boards, and were characterized by a wide range of founder equity shares.     

Home country institutions,social value orientation,and the internationalization of ventures

We examined how home country formal institutions and the venture’s value orientation influenced the venture’s likelihood of internationalization based on a data set that was adapted from the Global Entrepreneurship Monitor (GEM) data in the year 2009, covering 7668 individual ventures in 25 countries. Better-developed home country formal institutions are found to have a supportive impact on the venture’s likelihood of internationalization. The supportive impact is also found to be weaker for socially oriented ventures than for profit-oriented ventures. The venture’s social value orientation negatively moderates the home country formal institutions–likelihood of internationalization relationship. The negative moderating effects can be explained as follows: Socially oriented ventures in the better-developed home country institutional environment are less likely to develop coping skills against uncertain and risky institutional environments, which are common in their host countries. Besides the theoretical contributions, this paper also highlights the implications for both business researchers and policy makers.     

International exposure through network relationships: Implications for new venture internationalization

Drawing on the network literature and attention-based view, we examine the extent to which international exposure from key informal (geographically proximate firms) and formal (alliance partners) network relationships impacts new venture internationalization. Our findings are three-fold. First, international exposure from both types of network relationships positively influence new venture internationalization, and serve as substitutes for each other. Second, the effects differ based on the age of the venture. While older ventures benefit more from international exposure from alliance partners, younger ventures are more influenced by international exposure from geographically proximate firms. Third, our analysis confirms a three-way interactive effect of age and international exposure from informal and formal relationships on new venture internationalization.     

The informal venture capital market: Aspects of scale and market efficiency

Risk capital is a resource essential to the formation and growth of entrepreneurial ventures. In a society that is increasingly dependent upon innovation and entrepreneurship for its economic vitality, the performance of the venture capital markets is a matter of fundamental concern to entrepreneurs, venture investors and to public officials. This article deals with the informal venture capital market, the market in which entrepreneurs raise equity-type financing from private investors, (business angels). The informal venture capital market is virtually invisible and often misunderstood. It is composed of a diverse and diffuse population of individuals of means; many of whom have created their own successful ventures. There are no directories of individual venture investors and no public records of their investment transactions. Consequently, the informal venture capital market poses many unanswered questions.The author discusses two aspects of the informal venture capital market: questions of scale and market efficiency. The discussion draws upon existing research to extract and synthesize data that provide a reasonable basis for inferences about scale and efficiency.Private venture investors tend to be self-made individuals with substantial business and financial experience and with a net worth of $1 million or more. The author estimates that the number of private venture investors in the United States is at least 250,000, of whom about 100,000 are active in any given year. By providing seed capital for ventures that subsequently raise funds from professional venture investors or in the public equity markets and equity financing for privately-held firms that are growing faster than internal cash flow can support, private investors fill gaps in the institutional equity markets.The author estimates that private investors manage a portfolio of venture investments aggregating in the neighborhood of $50 billion, about twice the capital managed by professional venture investors. By participating in smaller transactions, private investors finance over five times as many entrepreneurs as professional venture investors; 20,000 or more firms per year compared to two or three thousand. The typical angel-backed venture raises about $250,000 from three or more private investors.Despite the apparent scale of the informal venture capital market, the author cites evidence that the market is relatively inefficient. It is a market characterized by limited information about investors and investment opportunities. Furthermore, many entrepreneurs and private investors are unfamiliar with the techniques of successful venture financing. The author's scale and efficiency inferences, coupled with evidence documenting gaps between private and social returns from innovation, prompt questions about public as well as private initiatives to enhance the efficiency of the informal venture capital market.The article concludes with a discussion of Venture Capital Network, Inc. (VCN), an experimental effort to enhance the efficiency of the informal venture capital market. VCN's procedures and performance are described, followed by a discussion of the lessons learned during the first two years of the experiment.     

Reputation and new venture performance in online markets: The moderating role of market crowding

Reputation represents an important driver of new venture performance. This article shows that the performance benefits of reputation are substantially contingent on ventures' market conditions. My study of 797,087 sales transactions by 5760 new ventures in 119 platform-mediated online markets provides strong evidence that market crowding attenuates the reputation–performance relationship. Ventures benefit 38% to 42% more from a favorable reputation when they compete in an uncrowded (versus crowded) market. By disentangling the underlying mechanisms of reputation, my study allows for more accurate predictions about why, when, and how ventures benefit from reputation.     

Cash crisis in newly public Internet-based firms: an empirical analysis

This study examines why, even when financial resource constraints are significantly relaxed, some new ventures struggle to survive while others prosper. Using the data of approximately 200 new Internet ventures that went public during the years 1997 through 1999, we propose that the performance of new ventures is a function of pre-initial public offering (IPO) characteristics. We determined that firm-level characteristics, including top management team (TMT), financial position, networks, and location, are related to the performance of struggling new ventures. We found strong evidence of agency relationships, so that a substantial reduction in equity holdings by the entrepreneurial team is a strong signal of impending crisis. Interestingly, similar reductions by venture capital (VC) backers did not serve as a signal of crisis.     

Sowing the seeds of failure: Organizational identity dynamics in new venture pivoting

New ventures in nascent markets often pivot while still developing their organizational identity. A strong identity helps attract investors and employees and pivoting helps pursue new opportunities. How do they interact? To illuminate this process, we conduct an in-depth longitudinal field study of a new venture developing a technology to transform Internet websites for mobile devices. The venture completes a first pivot but fails during a second attempted pivot of its business model in the nascent market. Comparing the completed and the attempted pivot, our analysis suggests that new venture pivoting relies on the ability to crystallize the individual roles of organizational members (“what we do”) in line with organizational identity (“who we are”). Our findings shed light on stakeholder constraints on pivoting by scaling new ventures through the micro-mechanism of role crystallization. Our analysis also delineates the inter-temporal effects of lingering organizational identity, thereby advancing research on the organizational identity dynamics of new ventures.     

Unraveling the IJV Rationale in Emerging Markets: The Case of Multinational Enterprises in the Russian Construction Industry

ABSTRACT

This article investigates the role of international joint venture strategy of five multinational enterprises in the Russian construction market. Joint ventures play a crucial and specific role for these firms’ strategy in Russia: They serve both as an entry mode and a postentry strategy; facilitate business and guide foreign investors; increase efficiency for further strategy; and help international construction firms overcome the environmental deficiencies. Findings of the article bolster the theory by stressing the facilitating effect of joint venture upon challenges and problems that Western firms meet in emerging market in contrast with more developed economies.     

New venture survival: Ignorance,external shocks,and risk reduction strategies

Although scholars have long recognized the increased mortality risk that new ventures face in terms of a “liability of newness,” most of the discussion around this risk has been in terms of the contextual constraints that new ventures face and the difficulties that managers have in overcoming them. This emphasis is in part a reflection of the perils of newness but also stems from the retrospective and aggregate perspective taken by researchers. Although the macro-level perspective of new venture mortality has made a significant contribution to our knowledge of mortality risk patterns, there has been little interest in identifying how venture managers can address the risks that all new organizations face.We argue that in order to make progress in explaining new venture survival, a theoretical model is required that uses a more micro-level perspective to explain new venture failure (and the flip side, new venture survival). In this paper we develop such a model. We establish a definition of mortality risk and argue that the liability of newness is largely dependent on the degree of novelty (ignorance) associated with a new venture. Novelty is viewed in three different dimensions, viz.: to the market, to the technology of production and to management. Novelty to the market concerns the degree to which the customers are uncertain about the new venture. Novelty in production concerns the extent to which the production technology used by the new venture is similar to the technologies in which the production team has experience and knowledge. Novelty to management concerns the entrepreneurial team's lack of business skills, industry specific information and start-up experience. We argue that mortality risk increases with the degree of novelty in each dimension and with the number of dimensions in which the new venture is novel.We propose that the decline in mortality risk occurs as the venture's novelty in each of the three dimensions is eroded by information search and dissemination processes. This allows the new firm to become an established business and explains what we term the “evolutionary” path of mortality—novelty and risk decline monotonically, after a period of adolescence, as ignorance decays over time due to `passive learning'. We also propose that there is a “strategic” mortality risk path that reflects the impact of positive and negative shocks (shocks are exogenous events that alter the overall degree of novelty at a point in time— positive shocks decrease overall novelty, while negative shocks increase overall novelty) and reversals (endogenous actions that increase the overall novelty of the new venture at a point in time) on the mortality risk of a new venture.If the incidence and effects of these disruptions can be managed, then venture managers may be able to mitigate the mortality risk for their venture. We argue that risk reduction strategies can be employed, most of which impact on one or more of the dimensions of mortality risk in order to increase the firm's chances of survival. A series of risk reduction strategies are proposed and their impact on the determinants of mortality risk is considered.     

A founding-team model of creating a venture's culture

As many new ventures are started by founding teams, it is these founding teams that likely engage in creating their venture's culture. We draw on theories of cultural dynamics and the literature on team cognitive diversity to investigate the creation of a new venture's culture. Specifically, we theorize how a founding team's cognitive diversity impacts the team's production of cultural information and the transmission of that information throughout the venture. Cognitive diversity directly influences the founding team's production of cultural information by shaping the diversity of the information set and the speed of its production. Moreover, cognitive diversity can give rise to faultlines within the venture, impacting how venture members interpret cultural information. Importantly, our model suggests a complex interplay between the production and interpretation of cultural information. Understanding culture creation in new ventures is important because a new venture's culture shapes its legitimacy and thus its access to stakeholder resources for venture emergence.     

The paradox of new venture legitimation within an entrepreneurial ecosystem

The current rise in research on entrepreneurial ecosystems notes that many questions are still unanswered. We, therefore, theorize about a unique paradox for entrepreneurs trying to establish legitimacy for their new ventures within and beyond an entrepreneurial ecosystem; that is, when pursuing opportunities with high levels of technological or market newness, entrepreneurs confront a significant challenge in legitimizing their venture within an entrepreneurial ecosystem, while those entrepreneurs pursuing ventures using existing technologies or pursuing existing markets have a much easier path to garnering legitimacy within that ecosystem. However, the diffusion of that legitimacy beyond the ecosystem will be wider and more far-reaching for those pursuing the newer elements compared to those using existing technologies or pursuing existing markets, thus, creating a paradox of venture legitimation. Prior research outlines approaches for new venture legitimacy but it is unclear when these approaches should be applied within and beyond an entrepreneurial ecosystem. To address this paradox, we integrate ideas from the entrepreneurship and innovation literature with insights from the legitimacy literature to describe how different types of venture newness employ different legitimation strategies which results in different levels of legitimacy diffusion beyond an ecosystem. We conclude with a discussion of our concepts and offer suggestions for future research efforts.