How Signaling Identity and Capability for Strategic Change Affects Venture Capital Syndication

Strategy & Business Policy

Speaker: Gina Dokko

Professor at University of California, Davis

Videoconference

When contemplating strategic change, it is helpful to have alliance partners for risk-sharing and learning; however, potential partners may be unwilling to join an inexperienced firm. We explore this tension, arguing that the fit between a firm’s proposed new activities and signals about its identity and its capabilities makes the firm more attractive as a potential partner. To test these ideas, we study alliance formation in China’s venture capital (VC) industry. Using data about a VC firm’s investments, its own statements about investment preferences, and its hiring of venture capitalists, we find that VC firms that propose moving into new areas that are consistent with their identity signals and capability signals are more likely to successfully syndicate investments.

Keywords:

Alliance formation; signaling theory; identity; capability; venture capital