Overcoming the Matthew Effect in Status Dominated Environments – A Configurational Analysis of Venture Capital Investments

Abstract

Entering status dominated environments as new entrant is a difficult endeavor. Accumulated advantages go along with the tendency of incumbents to succeed, whereas entrants are likely to lose (Matthew effect). This study examines what combination of deal resources accumulated by venture capital partners lead to high deal performance in order to analyze if new entrants can nonetheless overcome the burden of being new, i.e. having a low status position and only weak ties with current actors in status dominated environments. Our configurational analysis of 333 venture capital investments reveals opportunities for entrants to succeed that go beyond joining forces with established actors. Our findings contribute to research on interorganizational network formation and the strategic actions new entrants on the VC market may take to be successful. Furthermore, the study sheds light on the effect of syndicated opposed to single venture capitalist deals and suggests that successful syndicates require a certain degree of homogeneity among the investors.

Keywords: Performance, New Entrants, Status, Syndicate, Tie Strength

JEL Classification: D85, G24, L14, L26, M13