Christina Guenther, Serden Özcan, Dirk Sassmannshausen
{"title":"Referrals among VCs and the length of due diligence: The effect of relational embeddedness","authors":"Christina Guenther, Serden Özcan, Dirk Sassmannshausen","doi":"10.1016/j.jbusvent.2022.106230","DOIUrl":null,"url":null,"abstract":"<div><p>Venture capital is a socially embedded business where VCs refer investment opportunities to one another. While we know that these referrals increase the chances of a start-up passing the initial screening process, we investigate to what extent the intensity of relational embeddedness between referrer and referee relates to the length of the due diligence process of the start-up being referred. Extending information processing theory by social network theory arguments, we argue that referees have access to more and better information during the due diligence as relational embeddedness increases. This will lead to a more in-depth and rigorous evaluation. Moreover, the referee will be subject to social obligations to invest additional resources in the assessment, the more so, the stronger the relational embeddedness. Both factors lead to a prolongation of the due diligence process. Furthermore, we find that the individual investment manager's current performance and experience moderate this relationship.</p></div>","PeriodicalId":51348,"journal":{"name":"Journal of Business Venturing","volume":null,"pages":null},"PeriodicalIF":7.7000,"publicationDate":"2022-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"3","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Journal of Business Venturing","FirstCategoryId":"91","ListUrlMain":"https://www.sciencedirect.com/science/article/pii/S0883902622000428","RegionNum":1,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q1","JCRName":"BUSINESS","Score":null,"Total":0}
引用次数: 3
Abstract
Venture capital is a socially embedded business where VCs refer investment opportunities to one another. While we know that these referrals increase the chances of a start-up passing the initial screening process, we investigate to what extent the intensity of relational embeddedness between referrer and referee relates to the length of the due diligence process of the start-up being referred. Extending information processing theory by social network theory arguments, we argue that referees have access to more and better information during the due diligence as relational embeddedness increases. This will lead to a more in-depth and rigorous evaluation. Moreover, the referee will be subject to social obligations to invest additional resources in the assessment, the more so, the stronger the relational embeddedness. Both factors lead to a prolongation of the due diligence process. Furthermore, we find that the individual investment manager's current performance and experience moderate this relationship.
期刊介绍:
The Journal of Business Venturing: Entrepreneurship, Entrepreneurial Finance, Innovation and Regional Development serves as a scholarly platform for the exchange of valuable insights, theories, narratives, and interpretations related to entrepreneurship and its implications.
With a focus on enriching the understanding of entrepreneurship in its various manifestations, the journal seeks to publish papers that (1) draw from the experiences of entrepreneurs, innovators, and their ecosystem; and (2) tackle issues relevant to scholars, educators, facilitators, and practitioners involved in entrepreneurship.
Embracing diversity in approach, methodology, and disciplinary perspective, the journal encourages contributions that contribute to the advancement of knowledge in entrepreneurship and its associated domains.