The Effects of Intra- and Extra-Industry Networks on Performance : A Case of Venture Capital Portfolio Firms

This study examines the influence of intra- and extra-industry networks on firm performance by using data on 1264 UK venture capital (VC) backed start-up companies. The ventures' network was operationalized by connecting together the various portfolio companies sharing the same investor. Regression results show that the venture's network has a strong impact on firm's success. Yet, whereas extra-industry ties are directly and positively linked to the likelihood of the venture to reach a successful exit, intra-industry ties exert a negative impact on companies' performances. However, interaction effects show that once a firm establishes a sufficient number of extra-industry ties, it is able to profit from the network in its industry of operation. Overall, these findings show that an optimal balance of ties is achieved through a diverse set of connections incorporating both intra- and extra-industry ties