Topic: Change, Organizational Development, Organizational Performance
Publication: Administrative Science Quarterly
Article: Bringing the context back in: Settings and the search for syndicate partners in venture capital investment networks.
Blogger: Rob Stilson
All right, so let me get the “summary” part of this out of the way first. A recent study by Sorenson and Stuart (2008) presented an elaborate and, at times, complicated peek into the mechanisms through which venture capital firms form syndicates with other venture capital firms when investing in start-up companies. Based on some person-level theories of relationship building, the specific aim of the researchers was to describe how characteristics of the investment situation (which included variables such as how “fashionable” the targeted industry was at the time of investment, the maturity of the target company, the size of the investment syndicate, and the density of relationships among members of the syndicate) influenced the likelihood of syndicate formation across “social distance” (defined as the similarity of investment histories between two firms and previous experience with each other, among other things). Breaking down the main findings, it was reported that venture capital firms were more likely to create distant ties with other firms when:
- the popularity of investing in the target company’s industry or geographic region (think Internet boom in Silicon Valley) was high
- the level of risk in investing in the target company was relatively low
- the size of the investment syndicate (i.e., the number of players involved in the venture capital firms) was large
- at least one member of the syndicate had worked with someone in the venture capital firm in a previous investment
But as I slammed my head against this article trying to maintain interest, I did come to a couple of interesting realizations which I think might be useful to those of us who are wholly academic I/O psychologists or still wet-behind-the-ears when it comes to how business operates in the “real world.”
1. Appreciating the context in which our “population” and variables of interest reside is not a trivial task. While some may not want to admit it, I/O psychology is a unique branch in that we bound our study of human behavior to specific environments; thus even a base understanding of that environment may reveal some insights into the nature of a phenomenon you might never have even considered.
2. Theories of the individual often have great use and appeal at describing theories of the organization—if you’re careful. The foundations for Sorenson and Stuart’s article were tied closely to early works on social exchange theory and networking, and the authors were quite explicit in explaining how similar the functional linkages were at both the individual and organizational level.Continuing to apply such thinking has the potential to advance our field, but it requires creative thinking, sound methodology and an understanding of where inferences might be most applicable. Moral of the story: take the time to expand your breadth a bit.
Granted, there’s the real possibility that you’ll be bored to death, but, if you’re lucky, you might just learn a thing or two that could come in handy down the line (especially if you’re ever a multi-millionaire looking to expand into high risk investments).
Sorenson, O., & Stuart, T. E. (2008). Bringing the context back in: Settings and the search for syndicate partners in venture capital investment networks. Administrative Science Quarterly, 53(2), 266-294.