Venture Performance, VC Experience, and Global Financial Markets

Elisa Alvarez-Garrido, Georgia State University, J. Mack Robinson College of Business

Abstract: Even though it is well understood that the success of entrepreneurial ventures depends to a great extent on their interorganizational relationships, the role of the external environment in which these relationships unfold remains relatively unexplored. In contrast, resource-dependence theory regards the environment as a major factor in the degree to which external resources contribute to firm performance. This paper explores the role of the external environment in the context of partnerships between ventures and venture capital firms across the world, focusing on variation in the liquidity of the local stock market, an aspect of financial market development that ranks among the top concerns fo global ventures capitalists (VCs). Using a longitudinal sample of 457 biotechnology ventures from 20 different countries, and of 570 U.S. biotechnology ventures, I find support for the general claim that VC experience, as a shared resource in the interorganizational partnership, increases the odds of the venture going public or being acquired. However, I also find that the magnitude of this effect is much greater when the local stock market is less liquid. Moreover, this effect is driven by an increase in the initial public offerings (IPOs) and acquisitions in the local stock market, and not by an increase of foreign IPOs and acquisitions, which suggests that partner experience overcomes the challenges of the environment rather than providing access to foreign markets. This paper seeks to contribute to the strategy research by studying how financial markets moderate the effect of investors’ experience on venture performance.