Network Structure and Uncertainty: The Role of Strong Ties in Venture Capital Funding Networks

Abstract

Network-related outcomes are organized into several distinct theoretical classes of causes and effects based upon the network structure these ties suggest. The differences in these classes imply fundamental shifts in the efficacy and valence of the outcomes associated with distinct types of ties. We argue that which stream of network effects dominates depends highly on the environment an actor resides in. In environments that are uncertain, unstable, and whose market interactions and outcomes involve a greater degree of risk, strong ties provide benefits above and beyond ties of other types, such as weak ties. The mechanism underlying this process occurs as network actors build strong working group relationships that develop trust, build routines, and facilitate exploration in the face of uncertainty. The cofunding networks of venture capital firms illustrate that strong ties built through repeat collaboration on startup firm co-investments explain the successful outcomes of startup firms. In particular, ...