After The Break-Up: The Relational and Reputational Consequences of Withdrawals from Venture Capital Syndicates

Traditional research has long treated reputation as an egocentric attribute, typically described as an intangible asset directly shaped by the focal actor's track record. We argue, however, that reputation is dyadic: that an actor can have different reputations with different alters, and that its various reputations are shaped by three processes—awareness, interpretation and reevaluation. Awareness—the extent of the alter's knowledge of the focal actor's past behavior—is determined by the proximity of the two and by their centrality in the interorganizational network. Interpretation—the alter's processing of that knowledge to make inferences about the focal actor's character—is determined by what the alter perceives to be the root cause of the behaviors in question. Finally, reevaluation—change in the alter's beliefs about the focal actor—is determined by the gap between the alter's prior beliefs and new information. Specifically, when the alter's prior experiences of the focal actor are particularly negative, the latter's poor behavior in other relationships is unlikely to have much marginal effect. We test the resulting hypotheses by examining how a venture capital firm's reputation for unreliability, triggered by repeated withdrawals from investment syndicates, affects its probability of future syndication.