Toby E. Stuart

Interorganizational Endorsements and the Performance of Entrepreneurial Ventures

This paper investigates how the interorganizational networks of young companies affect their ability to acquire the resources necessary for survival and growth. We propose that, faced with great uncertainty about the quality of young companies, third parties rely on the prominence of the affiliates of those companies to make judgments about their quality and that young companies “endorsed” by prominent exchange partners will perform better than otherwise comparable ventures that lack prominent associates. Results of an empirical examination of the rate of initial public offering (IPO) and the market capitalization at IPO of the members of a large sample of venture-capital-backed biotechnology firms show that privately held biotech firms with prominent strategic alliance partners and organizational equity investors go to IPO faster and earn greater valuations at IPO than firms that lack such connections. We also empirically demonstrate that much of the benefit of having prominent affiliates stems from the transfer of status that is an inherent byproduct of interorganizational associations.

Interorganizational alliances and the performance of firms : A study of growth and innovation rates in a high-technology industry

This paper investigates the relationship between intercorporate technology alliances and firm performance. It argues that alliances are access relationships, and therefore that the advantages which a focal firm derives from a portfolio of strategic coalitions depend upon the resource profiles of its alliance partners. In particular, large firms and those that possess leading-edge technological resources are posited to be the most valuable associates. The paper also argues that alliances are both pathways for the exchange of resources and signals that convey social status and recognition. Particularly when one of the firms in an alliance is a young or small organization or, more generally, an organization of equivocal quality, alliances can act as endorsements: they build public confidence in the value of an organizations products and services and thereby facilitate the firms efforts to attract customers and other corporate partners. The findings from models of sales growth and innovation rates in a large sample of semiconductor producers confirm that organizations with large and innovative alliance partners perform better than otherwise comparable firms that lack such partners. Consistent with the status-transfer arguments, the findings also demonstrate that young and small firms benefit more from large and innovative strategic alliance partners than do old and large organizations. Copyright

Network Positions and Propensities to Collaborate: An Investigation of Strategic Alliance Formation in a High-technology Industry

I wish to acknowledge many helpful suggestions from Biil Barnett, Ron Burt, Glenn Carroll, Karel Cool, Mike Hannan, Jeff Pfeffer, Joel Podolny, and Jesper Sorensen, Comments from Mark Mizruchi and three anonymous reviewers greatiy improved this paper. Financial support for this research was provided by the FMC Scholar progfam at the University of Chicago, Graduate School of Business and from the State Farm Doctoral Dissertation Fellowship. The paper develops a net\/vork-based mapping of the technoiogicai positions of the firms in an industry and applies this model in a longitudinal study of the formation of alliances between organizations. In the analysis, the positions of high-technology firms in their competitive environment are stratified on two dimensions: crowding and prestige. Organizations in crowded positions are those that participate in technological segments in which many firms actively Innovate, and prestigious firms are those with a track record of developing seminal inventions. The studys principal empirical findings are that firms in crowded positions and those with high prestige form alliances at the highest rates. The statistical analyses, performed on a sample of semiconductor firms during a six-year period, demonstrate that crowding and prestige predict alliance formations at the firm level (which organizations establish the greatest number of alliances) and at the dyad level (which particular pairs of firms choose to collaborate).*

The geography of opportunity: spatial heterogeneity in founding rates and the performance of biotechnology firms

One of the most commonly observed features of the organization of markets is that similar business enterprises cluster in physical space. In this paper, we develop an explanation for firm co-location in high-technology industries that draws upon a relational account of new venture creation. We argue that industries cluster because entrepreneurs find it difficult to leverage the social ties necessary to mobilize essential resources when they reside far from those resources. Therefore, opportunities for high tech entrepreneurship mirror the distribution of critical resources. The same factors that enable high tech entrepreneurship, however, do not necessary promote firm performance. In the empirical analyses, we investigate the effects of geographic proximity to established biotechnology firms, sources of biotechnology expertise (highly-skilled labor), and venture capitalists on the location-specific founding rates and performance of biotechnology firms. The paper finds that the local conditions that promote new venture creation differ from those that maximize the performance of recently established companies.

Networks, Knowledge, and Niches: Competition in the Worldwide Semiconductor Industry, 1984-1991

The authors develop a conceptions of an organization-specific niche in a technological network. This niche is defined by two properties: crowding and status. The authors hypothesize that crowding suppresses and organizations life chances and that status enhances life chances, especially for those organizations in uncrowded niches. They operationalize this conception of the niche using patents and patent citations, and they find support for these hypotheses in an examination of technological competition in the worldwide semiconductor industry. In the conclusion, they compare these findings to earlier research and highlight some of the particular advantages of this conception of the niche.

When do scientists become entrepreneurs? The social structural antecedents of commercial activity in the academic life sciences.

The authors examine the conditions prompting university‐employed life scientists to become entrepreneurs, defined to occur when a scientist (1) founds a biotechnology company, or (2) joins the scientific advisory board of a new biotechnology firm. This study draws on theories of social influence, socialization, and status dynamics to examine how proximity to colleagues in commercial science influences individuals’ propensity to transition to entrepreneurship. To expose the mechanisms at work, this study also assesses how proximity effects change over time as for‐profit science diffuses through the academy. Using adjusted proportional hazards models to analyze case‐cohort data, the authors find evidence that the orientation toward commercial science of individuals’ colleagues and coauthors, as well as a number of other workplace attributes, significantly influences scientists’ hazards of transitioning to for‐profit science.

Bringing the Context Back In: Settings and the Search for Syndicate Partners in Venture Capital Investment Networks

Most existing theories of relationship formation imply that actors form highly cohesive ties that aggregate into homogenous clusters, but actual networks also include many “distant” ties between parties that vary on one or more social dimensions. To explain the formation of distant ties, we propose a theory of relationship formation based on the characteristics of “settings,” or the places and times in which actors meet. We posit that organizations form relations with distant partners when they participate in two types of settings: unusually faddish ones and those with limited risks to participants. In an empirical analysis of our thesis in the formation of syndicate relations between U.S. venture capital firms from 1985 to 2007, we find that the probability that geographically and industry distant ties will form between venture capital firms increases with several attributes of the target-company investment setting: (1) the recent popularity of investing in the target firms industry and home region, (2) the target companys maturity, (3) the size of the investment syndicate, and (4) the density of relationships among the other members of the syndicate.

Financial Contracting in Biotech Strategic Alliances

We analyze 125 strategic alliance contracts, all of which concern early-stage research at small biotechnology research and development companies. Staged investment is ubiquitous, but solutions to agency problems vary. The cycle of equity participation in alliances resembles what we observe in venture capital contracts: they involve convertible equity and sometimes contain antidilution provisions, warrants, and board seats. Contracts rights vary explicitly with the size of the equity stake. Contracts contain explicit provisions linking equity participation to subsequent initial public offerings and contain clauses designed to insulate both parties from multitasking problems. Contracts often specify provisions that are unobservable or difficult to verify, which suggests a role for expected litigation as an enforcement tool in contract design.

Avenues of Attainment: Occupational Demography and Organizational Careers in the California Civil Service1

This article outlines a comprehensive approach to analyzing organizational career inequality, emphasizing interdependencies among multiple �avenues of attainment�: job shifts and lateral moves, within and between organizations; changes in salary and salary ceilings associated with job shifts; and within‐job salary advancement. Hypotheses regarding how occupational sex and race composition affect these career outcomes are tested with data describing work histories of California state government employees. Although female‐ and minority‐dominated occupations were disadvantaged in many respects, their incumbents moved among state agencies more frequently (and reaped greater economic benefit) than did employees in occupations dominated by white males. Intraorganizational promotions yielded roughly comparable salary gains for incumbents of male‐ and female‐dominated occupations, but through distinct paths: male‐dominated occupations had less frequent promotions with larger salary increases; female‐dominated occupations experienced more frequent job shifts with smaller pay changes. Men in female‐dominated occupations were shielded from many of the adverse career outcomes experienced by their female counterparts.

Discretion Within Constraint: Homophily and Structure in a Formal Organization

Homophily in social relations results from both individual preferences and selective opportunities for interaction, but how these two mechanisms interact in large, contemporary organizations is not well understood. We argue that organizational structures and geography delimit opportunities for interaction such that actors have a greater level of discretion to choose their interaction partners within business units, job functions, offices, and quasi-formal structures. This leads us to expect to find a higher proportion of homophilous interactions within these organizational structures than across their boundaries. We test our theory in an analysis of the rate of dyadic communication in an email data set comprising thousands of employees in a large information technology firm. These findings have implications for research on homophily, gender relations in organizations, and formal and informal organizational structure.