Abstract
This study investigates whether venture capital reputation is a blessing or a curse for entrepreneurial firm innovation by using data from 1553 observations of venture capital investments on entrepreneurial firms in China’s New Over-the-Counter (OTC) Market. Advantages that venture capital brings to entrepreneurial firms have been widely acknowledged in extant research. However, our research emphasizes the potential resource outflows rather than inflows when firms are embedded in a shared reputable venture capital, and finds that the curse effect of venture capital reputation on entrepreneurial firms is manifested. Furthermore, we develop the concept of venture capital “intra-industrial reputation” and “extra-industrial reputation” to give a contingent answer to the “blessing or curse” question. The conclusions are drawn indicating that the curse effect is contingent on industrial distance. Venture capital intra-industrial reputation is positively linked to entrepreneurial firm innovation, whereas extra-industrial reputation exerts a strong negative impact, which is responsible for the curse effect.
Highlights
Despite the prevalence of venture capital (VC) in the entrepreneurship field, there are still mixed results about influences VC can impose on entrepreneurship innovation
We argue that not all kinds of VC reputation can impose the same impact on firms by providing a more fine-grained conceptual analysis of VC reputation, and find that the curse effect of VC reputation on firm innovation comes from extra-industrial reputation, but not intra-industrial reputation
We find that the coefficient of this interaction term is negative (β = − 0.684) and highly significant (p < 0.01), suggesting that the larger industrial distance (ID) is, the more negative effect of VC’s reputation (VCrep) on Tfpt + 1 imposes, supporting H2
Summary
Despite the prevalence of venture capital (VC) in the entrepreneurship field, there are still mixed results about influences VC can impose on entrepreneurship innovation. The sharp conflict between founder and venture capitalist caused NVC, a leading lighting supplier in China, to experience a great labor strike, resulting in the founder’s resignation and a sharp drop in performance. Such an occurrence is rather common in the business world, exhibiting the curse effect for entrepreneurial firm innovation. Our primary hypothesis empirically indicates a negative correlation between VC reputation and backed firm innovation performance, resulting from unwanted resource outflows exceeding resource inflows. Our research gives an “if-” not “either-or” answer to the question—blessing or curse, by emphasizing the industrial fit between VC reputation and backed entrepreneurial firms
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