Unpacking Functional Alliance Portfolios: How Signals of Viability Affect Young Firms’ Outcomes

Abstract:     
This paper investigates how alliance portfolio composition affects young firms’ outcomes. Drawing on signaling theory, we propose how alliance portfolio composition — number, functional domains (R&D, manufacturing, and marketing), and single-purpose or multi-purpose nature of alliances within the portfolio — may affect firms’ likelihood of achieving a liquidity event (IPO or acquisition). We study 8,600 U.S.-based, VC-backed firms during the period of 1990–2002 from ten industry sectors. We find that alliance portfolios (to a certain extent) increase a firm’s liquidity event likelihood. Further, firms with heterogeneous alliance portfolios, including portfolios emitting greater efficiency signals versus endorsement signals, are more likely to experience an IPO versus acquisition. Our findings lend support to the value of multi-function alliances within portfolios.

Number of Pages in PDF File: 38

Keywords: alliance portfolios, entrepreneurial ventures, alliances, venture capital, IPOs, signaling theory, acquisition outcome

Accepted Paper Series