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Constraint on the Control Benefits of Brokerage: Evidence from U.S. Venture Capital Fundraising

57 Pages Posted: 2 Aug 2009  

Christopher I. Rider

Georgetown University, McDonough School of Business

Date Written: August 1, 2009

Abstract

This paper investigates how the control benefits of a broker’s structural position are constrained by the perceived quality of actors a broker may represent in an exchange. I propose that brokers prefer to represent high quality actors but also that the value an actor places on representation is inversely related to the actor’s perceived quality. This tension implies that neither the actors that value representation most nor the actors that brokers would most like to represent are most likely to be represented by a broker. I also propose that this quality constraint on the control benefits of brokerage is mitigated by the matching of reputable brokers with high quality actors. Empirical analyses of U.S. venture capital fundraising support the theory. The likelihood that a broker represents a firm’s venture fund first increases and then decreases with three different quality indicators: fund size, firm experience and firm status. Firms of greater perceived quality are also represented by more reputable brokers.

Keywords: networks, brokerage, reputation, venture capital

JEL Classification: A14, G24, L20

Suggested Citation

Rider, Christopher I., Constraint on the Control Benefits of Brokerage: Evidence from U.S. Venture Capital Fundraising (August 1, 2009). Available at SSRN: https://ssrn.com/abstract=1442427 or http://dx.doi.org/10.2139/ssrn.1442427

Christopher I. Rider (Contact Author)

Georgetown University, McDonough School of Business ( email )

3700 O Street, NW
Washington, DC 20057
United States

HOME PAGE: http://chrisrider.info/

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