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The diminishing effect of VC reputation: Is it hypercompetition?

Author

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  • Mahto, Raj V.
  • Ahluwalia, Saurabh
  • Walsh, Steve T.

Abstract

Venture Capital (VC) influence on Technology Entrepreneurship (TE) and economic development has prompted policy makers to devote significant resources for attracting VCs to their area, especially VCs with a higher reputation. The VC literature has traditionally supported the importance of VC firm reputation to success of entrepreneurial firms and entrepreneurial activity in a region. The VC industry structure, where the VC firm reputation strongly determines their power and investment returns, seems to have remained isolated from the disruptive influences of hypercompetition affecting other industries. But, this assumption remains untested. Our goal in this study is to assess if VC industry is changing and becoming more hypercompetitive. We empirically assess the influence of VC reputation by studying its impact on the success of portfolio companies over a 24-year period from 1990 to 2013. More specifically, we assess whether ventures backed by high reputation VCs have better post Initial Public Offering (IPO) performances than ventures backed by low reputation VCs. Our findings indicate that while VC reputation was strongly associated with portfolio company success in the past, its impact has diminished significantly in recently.

Suggested Citation

  • Mahto, Raj V. & Ahluwalia, Saurabh & Walsh, Steve T., 2018. "The diminishing effect of VC reputation: Is it hypercompetition?," Technological Forecasting and Social Change, Elsevier, vol. 133(C), pages 229-237.
    • Handle: RePEc:eee:tefoso:v:133:y:2018:i:c:p:229-237
    DOI: 10.1016/j.techfore.2018.04.018
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    Citations

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    Cited by:

    1. Chammassian, Raffi Gabriel & Sabatier, Valerie, 2020. "The role of costs in business model design for early-stage technology startups," Technological Forecasting and Social Change, Elsevier, vol. 157(C).
    2. Soluk, Jonas & Decker-Lange, Carolin & Hack, Andreas, 2023. "Small steps for the big hit: A dynamic capabilities perspective on business networks and non-disruptive digital technologies in SMEs," Technological Forecasting and Social Change, Elsevier, vol. 191(C).
    3. Elia, Stefano & Giuffrida, Maria & Mariani, Marcello M. & Bresciani, Stefano, 2021. "Resources and digital export: An RBV perspective on the role of digital technologies and capabilities in cross-border e-commerce," Journal of Business Research, Elsevier, vol. 132(C), pages 158-169.
    4. Maurer, Joshua D. & Creek, Steven A. & Bendickson, Joshua S. & McDowell, William C. & Mahto, Raj V., 2022. "The three pillars’ impact on entrepreneurial activity and funding: A country-level examination," Journal of Business Research, Elsevier, vol. 142(C), pages 808-818.
    5. Chatterjee, Sheshadri & Chaudhuri, Ranjan & Vrontis, Demetris & Thrassou, Alkis, 2022. "SME entrepreneurship and digitalization – the potentialities and moderating role of demographic factors," Technological Forecasting and Social Change, Elsevier, vol. 179(C).
    6. Maresch, Daniela & Leo, Hannes & Walsh, Steven T., 2023. "Hotspurs in, sober bores out: A call and an agenda for entrepreneurship and innovation policies that foster rapidly scaling ventures," Technological Forecasting and Social Change, Elsevier, vol. 196(C).
    7. Wang, Wei & Liang, Qiaozhuan & Mahto, Raj V. & Deng, Wei & Zhang, Stephen X., 2020. "Entrepreneurial entry: The role of social media," Technological Forecasting and Social Change, Elsevier, vol. 161(C).
    8. Dunne, Timothy C. & Clark, Brent B. & Berns, John P. & McDowell, William C., 2019. "The technology bias in entrepreneur-investor negotiations," Journal of Business Research, Elsevier, vol. 105(C), pages 258-269.
    9. Ahluwalia, Saurabh & Mahto, Raj V. & Guerrero, Maribel, 2020. "Blockchain technology and startup financing: A transaction cost economics perspective," Technological Forecasting and Social Change, Elsevier, vol. 151(C).

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