Cross-disciplinary Seminar Series in

Strategy and Entrepreneurship

Emilio J. Castilla

Massachusetts Institute of Technology

Bringing Over-Embeddedness Back in: Assessing the Impact of Venture Capital Funding, Syndication Networks, and Regional Diversity on the Success of Start-Up Companies

Abstract
My research advances the study of new organizations' performance by identifying and empirically testing the different economic, regional, and social network factors influencing the performance of start-up companies. Using a sample of 4,160 venture-capital funded start-ups in the United States, I find evidence network mechanisms still play a key role in explaining start-up companies' success, even after controlling for the characteristics of their funding, industry, and the regional diversity (in employment and economic activities) where they are located. Companies backed by venture capital firms involved in more dense patterns of co-investments are more likely to go public (merge or get acquired) than start-ups funded by isolated venture capital firms. In addition, the success of a company in the public market is significantly enhanced when its funding comes from a syndication network of venture capital firms with central and structurally autonomous firm investors. Most importantly, my analyses show that the same network structure predicts the failure of the start-up, finding support to the often ignored over-embeddedness theoretical argument, i.e., that social ties can result in the funding of non-profitable business ventures as well. This study suggests that future research should take a comprehensive approach when investigating under which circumstances the beneficial aspects of social networks not only disappear but become detrimental for newly created organizations.

BIO
Emilio J. Castilla is an assistant professor of management at the MIT Sloan School of Management, where he teaches courses in organizational behavior and strategic human resource management. He joined MIT after being a faculty member at the Wharton School of Business, University of Pennsylvania, for three years. He is a research fellow at the Institute for Work and Employment Research (at MIT), the Wharton Financial Institutions Center and the Center for Human Resources (at the Wharton School). He received his post-graduate diploma degree in business analysis from the Management School in Lancaster University (UK) and his PhD in Sociology from Stanford University. His research interests include economic sociology and sociology of organizations, with special interests in the hiring, training, retention, promotions, and job mobility (in general) of employees within (and across) organizations and locations. He is also interested in teamwork and social relations within organizations and their impact on employee’s careers. In his most recent published article, Castilla examines the performance implications of hiring new employees using employees’ referral networks (“Social networks and employee performance in a call center,” American Journal of Sociology March 2005). Currently, he studies the relationship between performance evaluations and career-related outcomes such as wage growth, promotions, transfers and terminations in one large service organization in the United States. He is also involved in an empirical network analysis of start-up companies and their venture capital funding in different technology regions of the world. He is writing a book on the use of longitudinal methods in social science research (to be published by Elsevier).
 

For information about the series, contact Dianne Fox at dfox@rhsmith.umd.edu.