Abstract

Failure is an important component of entrepreneurial endeavors which has been given disproportionately little attention in the entrepreneurship literature, and especially in the venture capital context. This is unfortunate, because experiencing failure can open possibilities for significant learning, which can improve likelihood of future success.

In this paper, we study failure in the context of VC syndication and argue that the investment process preceding a failure offers not only valuable lessons about improving the VC’s future operations, but also an intimate understanding of syndicate partners’ behavior under conditions of adversity. Pre-failure cooperation offers unique opportunities for building relationship-specific assets among partners in the syndicate because firms ordinarily do not subject their norms of operation and coordination to the same scrutiny when succeeding as when things start deviating from the expected. Accordingly, in this study we rely on literature on learning from failure to develop a theoretical model with hypotheses specifying the conditions that make the renewal of a relationship between syndicate partners following a failure more likely, and how such renewed syndicates affect the post-failure investment performance.

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