Connected VCs and Strategic Alliances
Posted: 12 Apr 2018 Last revised: 3 Jun 2019
Date Written: February 7, 2019
We study a new channel through which portfolio companies benefit from ties among venture capitalists (VCs). We show that these ties improve companies’ access to strategic alliance partners from connected VCs’ portfolios. While prior literature demonstrates that alliances are more frequent among companies sharing the same VC, we provide evidence that the "connected-VC-effect" dominates the "same-VC-effect". The "connected-VC-effect" is stronger when transaction and information costs increase, consistent with VC ties resolving asymmetric information problems. Strategic alliances between companies from connected VCs’ portfolios tend to be well-performing. Our results show that this type of alliances improves companies’ IPO chances.
Keywords: Venture Capital, Strategic Alliance, Syndication, Prior Ties, Connected Venture Capital Investors
JEL Classification: G24, L24, L26
Suggested Citation: Suggested Citation