Connected VCs and strategic alliances: Evidence from biotech companies

Leonhard Brinster and Tereza Tykvova

Journal of Corporate Finance, 2021, vol. 66, issue C

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.

Keywords: Venture capital; Strategic alliance; Prior ties; Connected venture capital investors; Transaction and information costs; Biotechnology (search for similar items in EconPapers)
JEL-codes: G24 L24 L26 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:66:y:2021:i:c:s0929119920302790

DOI: 10.1016/j.jcorpfin.2020.101835

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