Signaling for more money: The roles of founders' human capital and investor prominence in resource acquisition across different stages of firm development

We use signaling theory to explain how new ventures effectively signal future prospects to acquire external resources. Based on a sample of 235 new ventures drawn from a unique dataset combining multiple sources, we examine the signals of founders' human capital (i.e., education, industry experience, and founding experience) and investor prominence and their influence on the amount of external funding received across two stages of venture funding. We find that founders' founding experience and education have the greatest effects for acquiring first-round financing, but in later stages, only the signaling effect from education remains. Furthermore, we find important interactions between founders' human capital and investor prominence in the second round of funding. By utilizing lagged funding information, we show that different types of signals have a dynamic and temporal impact on new ventures' resource acquisition, including the persistence of some signals and the temporariness of others.     

The role of top management teams in transforming technology-based new ventures' product introductions into growth

The literature highlights the importance of top management teams (TMTs) for technology-based new ventures' success in achieving growth, which is often achieved through product introductions. The human capital theory suggests that TMT members' skills, which are typically derived from their education and experience, can facilitate the transformation of new product introductions into growth. We also propose that multiple products that must be managed and brought to the marketplace smoothly and flexibly benefit from the lower coordination needs and conflicts that are typical of functionally homogeneous teams. Using a unique, multi-source dataset on 374 US technology-based new ventures during the period from 2005 to 2014, we find that new product introductions help technology-based new ventures grow only when the TMT has startup experience and is not functionally diverse. Our findings lead us to echo calls in the TMT literature to move away from simple direct-effect models to more situation-dependent analyses of TMT diversity.     

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.     

Navigating liminality in new venture internationalization

Prior research describes international expansion as a series of discrete steps and notes that taking them threatens new ventures' survival, especially due to unexpected setbacks. Seen through the lens of social science, the source of such threat becomes clearer. In this paper, we argue that internationalization in new ventures involves what social anthropologists call a liminal transition – a betwixt-and-between period lying between the intent to internationalize and the realization of a stable internationalized state. The ambiguous and transitory nature of this liminal transition has the potential to increase the odds of overreach (e.g. a high-cost market entry without sufficient resources). Avoiding the negative influence of liminality – and instead harnessing its positive effect – relies on three sources of support that we refer to as opportunity scaffolding: self-reflective learning, peer learning and consultative learning. We argue that entrepreneurs with personality profiles high in levels of core self-evaluation (CSE) are more likely to utilize the scaffolding like that available in business incubators effectively. This leads to the development of a more reflective mindset, making capability learning more likely, preventing decisions that lead to overreach and reducing the threat to INV survival. However we also strike a note of caution in that at excessive (hyper) levels of CSE, the internationalizing new venture could become the victim of hubris. Emboldened with unrealistically high self-confidence, hubristic entrepreneurs are more likely to rebuff use of scaffolding, leading to a more reactive mindset, increasing the probability of liminal overreach and threatening INV survival.

Initial coin offerings (ICOs) to finance new ventures

In an initial coin offering (ICO), new ventures raise capital by selling tokens to a crowd of investors. Often, this token is a cryptocurrency, a digital medium of value exchange based on the distributed ledger technology. Both the number of ICOs and the amount of capital raised have exploded since 2017. Despite attracting significant attention from ventures, investors, and policy makers, little is known about the dynamics of ICOs. This initial study therefore assesses the determinants of the amount raised in 423 ICOs. Drawing on signaling theory, the study explores the role of signaling ventures' technological capabilities in ICOs. The results show that technical white papers and high-quality source codes increase the amount raised, while patents are not associated with increased amounts of funding. Exploring further determinants of the amount raised, the results indicate that some of the underlying mechanisms in ICOs resemble those found in prior research into entrepreneurial finance, while others are unique to the ICO context. The study's implications are multifold and discussed in detail. Importantly, the results enable investors to more accurately understand crucial determinants of the amount raised (e.g., technical white papers, source code quality, token supply, Ethereum-standard). This reduces the considerable uncertainty that investors face when investing in ICOs and enables more informed decision-making.     

Categorically right? How firm-level distinctiveness affects performance across product categories

In their pursuit of “optimal distinctiveness,” firms need to simultaneously adhere to norms and stand out from the competition. Using longitudinal data from Amazon Launchpad, an online B2C marketplace for entrepreneurial products, we offer a multi-level perspective on optimal distinctiveness from a consumer goods market in which firms are active across different and heterogeneous product categories. Arguing along categorization, organizational identity, and the fit with audiences' theory of value, we challenge the assumption that firm-level distinctiveness, i.e., the distinctiveness of a firm's organizational identity and category claims, delivers equal benefits to all products it offers and showcase the decisive role of product category context. In product categories that share less overlap with other categories and thus occupy a more distinct position in the classification system, products offered by firms with high firm-level distinctiveness benefit, whereas in product categories that share frequent relations to other categories and thus occupy a non-distinct position, products do not benefit at all. This offers researchers and managers alike a new and more nuanced perspective on firm-level distinctiveness: It is not invariably efficient in addressing audiences once the “optimal” level is found, but requires careful consideration of both the firm-level appeal and the product category in which a firm seeks to operate. Firm-level distinctiveness provides firms with the means to increase the differentiation of their own products, yet this effect is most meaningful in product categories with an increasingly distinct position.     

Entrepreneurship,export orientation,and economic growth

In this paper the relationship between a country’s prevalence of new ventures and its rate of economic growth is investigated, while taking into account new ventures’ export orientation. It is generally acknowledged that new venture creation as well as export activity may both be important strategies for achieving national economic growth. However, to our knowledge no attempt has been made to investigate empirically the role of export-driven new ventures in economic growth. We focus on the national level and use data for a sample of 34 countries over the period 2002–2008. Our results suggest that, on top of a positive relation between entrepreneurial activity in general and subsequent macroeconomic growth, there is an additional positive effect of export-oriented early-stage entrepreneurship in higher-income countries. However, there is no such additional effect in lower-income countries.     

Funding the story of hybrid ventures: Crowdfunder lending preferences and linguistic hybridity

Prosocial crowdfunding platforms are venues for individual lenders to allocate resources to ventures that specifically pursue economic and social value. In a setting where hybridity is expected, do crowdfunders respond positively to category-spanning ventures, or do they prefer to fund ventures that are more clearly situated within a single category? Drawing on theory rooted in category membership and spanning, our hypotheses test whether prosocial crowdfunding lenders will more quickly allocate resources to hybrid microenterprises that communicate their hybridity, or to those that communicate a single one of their dual aims. Our study demonstrates that even in such a setting, crowdfunders lend more quickly to microenterprises that position themselves within a single linguistic category in which the social is emphasized over the economic. This suggests that how hybrid organizations position themselves in their linguistic narratives has a significant impact on resource allocation by external prosocial audiences.     

Contextualizing the categorical imperative: Category linkages,technology focus,and resource acquisition in nanotechnology entrepreneurship

This paper examines the role of category affiliations in entrepreneurial resource acquisition. Pace existing studies, we suggest category spanning will cause firms to be overlooked or discounted because evaluators assume that they have less expertise than their category-focused competitors; a phenomenon known as the ‘categorical imperative’. We suggest, however, that categories can be related both vertically and horizontally, and that this has important implications for understanding how the actors that span between them are evaluated. Studying startup ventures in nanotube technology, we show that venture capital investments were affected by a firm's position across patent classes that were related at both of these levels of analysis and that the interaction between them had implications for which firms received the largest investments.     

When do domestic alliances help ventures abroad? Direct and moderating effects from a learning perspective

While the importance of strategic alliances for new venture internationalization is well acknowledged, the effect of domestic partners remains less understood. Building on organizational learning theory's vicarious learning arguments, we suggest that internationally experienced domestic partners positively influence new ventures' international intensity. Moreover, acknowledging that ventures may have multiple learning sources, we argue that the effect is more pronounced when substituting for the lack of new ventures' top management teams' international experience, or when complementing the insights about foreign markets received from foreign alliance partners. The analysis of 194 publicly held new ventures largely supports our hypotheses.     

Out of sight but not out of mind: Why failure to account for left truncation biases research on failure rates

We note at least three major issues in entrepreneurship theory that can be clarified by studying the survival chances of new ventures: the extent to which entrepreneurs are so constrained by initial founding conditions that they are unable to learn; the degree to which heterogeneity and innovative capabilities are lost due to the failure of new ventures; and the imprinting effects of new ventures' early days on their subsequent development. However, previous research on these issues has been inconclusive because of problems in research design and data analysis. In this paper, we shed light on new venture failure rates by assessing the validity and generalizability of previous findings. We argue that research using registration data to study new ventures is very likely to generate biased results and that research attempting to track new ventures from a very early stage can still suffer from selection bias due to left truncation. Using a sample of new ventures from the Panel Study of Entrepreneurial Dynamics II, we provide evidence for the extent of such biases. We offer a statistical solution to left truncation that can be easily applied in widely used statistical programs.     

Combining sell-out data with shopper behaviour data for category performance measurement: The role of category conversion power

Retailers need to manage a series of complex decisions relating to numerous products. To reduce this complexity, they have introduced category management practices, which consider groups of similar products (categories) that can be managed separately as single business units (SBUs). Although the concept that the store offer should be organised as a category mix and that this strategy allows for better overall store management is already consolidated, retailers still struggle to adopt an approach to the store performance measurement starting from a category level perspective. Nowadays, the available methods for measuring categories’ performance are quite limited. The current trend sees the measurement of category performance mainly based on sell-out data that are ill-equipped to fully address category management issues. Retailers should broaden their field of analysis not only by focusing on the product/sales perspective but also by including other methodologies such as shopper behaviour analysis. In this regard, the use of technology offers the retail sector new perspectives for those analysis. Therefore, we intend to contribute to the ongoing debate on the retail analytics topic by presenting a shopper behaviour analytics system for category management performance monitoring. More in detail, we could derive a new key performance indicator, category conversion power (CCP), aimed at analysing and comparing the single categories organised within the store. The research is based on a unique dataset obtained from a real-time locating system (RTLS), which allowed us to collect behavioural data togheter with sell-out data (from POS scanner). We argue that retailers could exploit this new analytical method to gain more understanding at the category level and therefore make data-driven decisions aimed at improving performance at the store level.     

Signaling in science-based IPOs: The combined effect of affiliation with prestigious universities,underwriters, and venture capitalists

This paper studies the combined effect of affiliation with prestigious universities, underwriters, and venture capitalists on the valuation of biotech ventures at IPO and their post-IPO performance. We argue that affiliation to a prestigious university provides the affiliated firm with a quality signal in the scientific domain. The pure quality signaling effect of the affiliation is isolated from the substantive benefits it provides by performing a difference-in-difference approach based on the scientific reputation of scientists in firms' upper echelons. The signal is stronger the weaker is the scientific reputation of scientists of the focal IPO-firm and is additive to those provided by prestigious venture capitalists and underwriters. Results for a sample of 254 European biotech ventures that went through an IPO between 1990 and 2009 confirm our predictions.     

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.     

The power of arguments: How entrepreneurs convince stakeholders of the legitimate distinctiveness of their ventures

Entrepreneurs gain positive evaluations when their stakeholders are convinced that a new venture is simultaneously legitimate and distinct. Prior research highlights that analogies are a powerful device for constructing such legitimate distinctiveness. We extend this work by providing a more comprehensive typology of arguments that, besides analogies, contains five additional arguments that entrepreneurs can use to gain legitimacy and support for their ventures. We use this rhetorical typology in turn to consider how the nature of the business concept associated with a new venture constrains the choice, and effects, of certain arguments. Our typology provides a base for future research on the micro-discursive processes through which entrepreneurs claim, and in turn achieve, legitimate distinctiveness for their ventures.     

When consumers become project backers: The psychological consequences of participation in crowdfunding

Crowdfunding involves financing new ventures by relying on a large number of individual project backers who typically receive the venture's new product as a reward for their financial support. In three experimental studies, it is revealed that crowdfunding participation increases the extent to which consumers can personally connect to and identify with the focal venture compared to customers who merely buy the product in a classic market exchange setting (the baseline in our analysis). This identification process, which is rooted in the insight that one's financial contribution is perceived to be more meaningful to the focal venture, is also shown to trigger behavioral effects on important outcome variables such as increased subsequent consumption of the venture's products and more positive word-of-mouth behavior. The studies thus validate the idea that crowdfunding may be an effective tool to build strong(er) relationships with the venture's initial customer base. Hence, crowdfunding might not only answer the question “Where could I get funding from?” but also another: “Where can I effectively connect with my future customers?” The findings further point to interesting consequences for participating consumers: because the venture is more strongly perceived as theirs, this means that also the associations linked to it may rub off more strongly on their sense of self compared to customers who merely buy the same venture's product in a classic market exchange setting. Crowdfunding participation may thus more strongly effect a qualitative change in the consumer's self-concept.     

The impact of early imprinting on the evolution of new venture networks

Given the argued importance of networks to new ventures, this paper is intended to fill a noted gap in the literature pertaining to the factors that influence the evolution of new ventures' alliance networks. Drawing on the imprinting literature, we propose that one has to look beyond the first partner per se, and instead focus on the extant relationships the initial partner has with other firms. More specifically, we argue and find that the network size and centrality of a new venture's initial alliance partner influence the subsequent size of the new venture's network.     

The exemplar enigma: New venture image formation in an emergent organizational category

We examine the process of organizational image formation for new ventures entering an emerging organizational category. An emerging organizational category is usually initiated by a pioneering venture that adopts a new organizational form. If that venture garners early recognition, it serves as an exemplar, attracting other ventures to enter the emerging category. Those ventures then have to formulate an image that both accounts for and competes with that of the category exemplar. This article describes how ventures form their images in the face of this tension. We examine this tension using qualitative data from eight new U.S. venture accelerators entering the emergent venture accelerator category, which revealed that image formation in an emerging organizational category involves three basic considerations: (1) emulation, (2) experimentation, and (3) divergence. Through emulation, organizations observe and rely on the exemplar in order to capture legitimacy. Through experimentation, organizations consider who they are beyond the exemplar and how they might change. Through divergence, organizations definitively claim and establish a unique image. From this, a conceptual framework is proposed in which organizational and contextual factors influence image formation actions and decisions.     

Newness and novelty: Relating top management team composition to new venture performance

We distinguish novelty from newness and argue that the tasks of new venture top management teams vary with new venture novelty. We argue that as novelty increases, the information processing requirements on the TMT change as well. Because a team's demographic characteristics influence its information processing abilities, venture performance should reflect, at least partially, the fit between the characteristics of the TMT and the level of venture novelty. Evidence from a large sample of ventures supports this view.