Impact of social networks on financing entrepreneurship
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Social networks are widespread in entrepreneurship. Scholars have shown strong interest in various relationships in entrepreneurship. This thesis focuses on two types of networks in the context of financing entrepreneurship: entrepreneurs’ social networks and venture capital firms’ networks. This thesis reviews the key literature on social networks in financing entrepreneurship. We assess prior empirical studies and identify two research streams in this field: the impact of entrepreneurs’ networks on new venture financing and the impact of venture capital (VC) network on VC investment strategy. From the two research streams, we first examine how entrepreneurs’ ties, which are considered to be complementary resources of new ventures for access to resources, provide a means to hedge new ventures’ liability of newness. We then empirically examine VC firms’ portfolio investment strategy under uncertainty by integrating the social network perspective with real options theory. We propose that uncertainty in an industry has a negative impact on portfolio focus in that industry, but a positive impact on portfolio diversity across industries, given the level of duplication and redundancy among the options of the investment projects. We further propose that the VC firm’s network position in its syndicate network—whether it is within-industry centrality or cross-industry brokerage—can influence the level of the VC firm’s portfolio focus and portfolio diversity under uncertainty. We find that the number of ties in the network does not help much but the ties with well-networked actors play an important role of tackling uncertainty.