Connected VCs and strategic alliances: Evidence from biotech companies
Journal
Journal of Corporate Finance
Type
journal article
Date Issued
2021-02
Author(s)
Abstract
We study a new channel through which portfolio companies benefit from ties among venture capitalists (VCs). By tracing individual VCs' investment and syndication histories, we show that VCs' ties improve companies' access to strategic alliance partners. While existing studies demonstrate that alliances are more frequent among companies sharing the same VC, we provide evidence that alliances are also more frequent among companies indirectly connected through VC syndication networks. In addition, our results suggest that VCs' ties mitigate asymmetric information problems that arise when alliances are formed. Finally, strategic alliances between companies from connected VCs' portfolios tend to perform well. We demonstrate that this type of alliance is associated with higher IPO chances. We also address alternative explanations and related endogeneity concerns.
Language
English
Keywords
Venture capital
Strategic alliance
Prior ties
Connected venture capital investors
Transaction and information costs
Biotechnology
Strategic alliance
Prior ties
Connected venture capital investors
Transaction and information costs
Biotechnology
HSG Classification
contribution to scientific community
HSG Profile Area
SOF - System-wide Risk in the Financial System
Refereed
Yes
Volume
66
Number
101835
Subject(s)
Division(s)
Eprints ID
262800
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Name
Connected VCs and strategic alliances Evidence from biotech companies.pdf
Size
1.93 MB
Format
Adobe PDF
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