Abstract
Network status is generally considered to be a valuable firm asset; however, its effects are not well understood in the context of cross-border VC investments, as foreign VC firms can have different statuses in their home and host countries, and prior research has considered only the effects of home-country network status. Theorizing the importance of a foreign VC firm's network status in the host country for cross-border VC investments, we hypothesize a positive performance effect for network status in the host country. Furthermore, we theorize that the performance effect of a VC firm's network status in the host country is stronger in countries with weaker host-country regulatory institutions. We test these hypotheses using a global sample of cross-border VC investments and find support for our arguments.
Highlights
Given that venture capital (VC) investors generally rely on their local networks to source and screen investment proposals (Colombo, et al, 2019; Cumming and Dai, 2010; Sorenson and Stuart, 2001), network status is relevant in VC (Dimov, et al, 2007; Podolny and Castellucci, 1999) and plays an important role in cross-border VC investments (Alvarez-Garrido and Guler, 2018; Guler and Guillen, 2010a)
Limiting the understanding of its effects in cross-border VC, little attention has been paid to analyzing the network status of VC firms in multiple host countries with different regulatory institutions (Ahlstrom and Bruton, 2006; Cumming, et al, 2010; Nahata, et al, 2014), which is an omission with important im plications for VC policy and VC firm strategies
Given the role of networks in substituting for weak regulatory in stitutions in VC, we argue that the network status of foreign VC firms in the host country is more important when investing in ventures located in host countries with weak regulatory institutions
Summary
Given that venture capital (VC) investors generally rely on their local networks to source and screen investment proposals (Colombo, et al, 2019; Cumming and Dai, 2010; Sorenson and Stuart, 2001), network status is relevant in VC (Dimov, et al, 2007; Podolny and Castellucci, 1999) and plays an important role in cross-border VC investments (Alvarez-Garrido and Guler, 2018; Guler and Guillen, 2010a). While the prior studies have examined the value of VC status in a single social setting and focused on the effects of VC firm status in the home country on its internationalization and performance in foreign countries (Alvar ez-Garrido and Guler, 2018; Dimov, et al, 2007; Guler and Guillen, 2010a), the present study contributes by highlighting the importance of VC firm status in the host country in cross-border investments, partic ularly for those in emerging countries with weak regulatory institutions. Our findings suggest that countries developing the internationalization of their VC markets should focus on improving their legal institutions (Dossani and Kenney, 2002), which would help reduce the reliance of VCs on private networks and connections and open the market for new investors
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