Marriage of Unequals? Investment Quality Heterogeneity and the Formation of Status-Asymmetric Ties

In this study, we investigate the emergence of status-asymmetric ties among venture capital firms. We propose that upward status asymmetries (in which a lower-status actor brings a higher-status alter into a project) occur under markedly different conditions than do downward status asymmetries (in which a higher-status actor brings in a lower-status alter). Lower-status firms tend to bring in higher-status alters into well-performing projects, because the high-status partner would not participate in less stellar opportunities and because the lower-status partner would be willing to share the spoils in exchange for status spillovers from the high-status partner. Conversely, higher-status partners tend to engage lower-status alters in poorly performing projects, because the low-status partner would be more willing to accept a potentially worse investment in exchange for the benefits of a higher-status affiliation. We test these theories in the context of venture capital syndication. We find consistent support for our predictions and document that low-status actors’ gestures to build relationships with high-status alters by bringing them into promising opportunities are rarely reciprocated. We discuss the implications of our study for the broader literatures on network dynamics and organizational inequality.