Chapter 8: Breaking in Together: Partnership Formation Patterns of New Market Entrants in the Venture Capital Industry

This chapter studies how firms enter into a new market domain through forming partnerships and how new entrants minimize risks in the process. Drawing on the principle of exclusivity in partner selection, we investigate the partnership formation of firms entering into new industry domains in the setting of U.S. venture capital (VC) investments. In contrast to prior studies that focus on dyadic partnership formation, we focus on syndicate-level analysis as better reflecting partnership formation patterns. Our empirical analyses reveal that VC firms new to a market syndicate predominantly with other new entrants. Syndicates with a higher percentage of new entrants tend to invest in more mature start-ups, and in investment rounds of smaller amounts or involving more VC partners. They also tend to avoid the turbulent environment of popular market domains. The study also sheds light on the differences between de novo entrants and de alio entrants in their market entry patterns.