Exchange Status, Ability Status, and Reputation within Venture Capital Markets

This study finds status that derives from new entrant venture capitalists' (VCs') information reach and frequency of repeated partnerships (exchange status) - the status construct generated by conventional implementations of the Bonacich (1987) construct - does not have any forecast power for future realizations of market reputations or future realizations of its own construct within venture capital markets. In empirical tests that substitute estimates of intrinsic ability for 'frequency of repeated partnerships' in implementation of the Bonacich (1987) construct, the resulting hybrid variable, ability status is shown to have forecast power for future realizations of market reputations and future realizations of exchange status. Forecast outcomes of ability status reveal strategies that enhance future realizations of market reputations do not simultaneously enhance future realizations of exchange status, and vice versa. A formal theoretical model demonstrates exchange status fails to have forecast power for future outcomes because the value of syndication is conditional on estimates of VCs' ability at timing of syndication activity. The formal model predicts, and empirical results show separating price equilibriums within venture capital markets can be characterized as arising out of a market structure within which strata of ability coexist with strata of project innovativeness, with higher ability VCs more likely to invest in, and more likely to syndicate investments in more innovative projects.