How Do Social Defenses Work? A Resource-Dependence Lens on Technology Ventures, Venture Capital Investors, and Corporate Relationships

Interorganizational relationships offer many potential benefits, but they also expose firms to dangers, such as misappropriation, which pull partners apart. This tension between collaboration and competition is central to tie formation, especially for young technology firms that have both a high need for resources and high appropriability of their own resources. Prior work has examined legal and timing defenses that enable interorganizational ties by such low-power firms; we focus here on social defenses. In a longitudinal study of equity tie formation between young firms and established corporate “sharks,” spanning five technology-based industries and 25 years, we unpack the effects of social defenses and find, intriguingly, that centrally positioned third parties are a particularly powerful social defense and that third-party social defenses are especially significant when more traditional defenses are unavailable. We thus offer the insight that third-party chaperones (central venture capital investors) play a key role in helping young firms to mitigate and navigate vulnerabilities while mobilizing resources.