Windows versus waves of opportunity: How reputation alters venture capital firms' resource mobilization

Research SummaryThis paper investigates how reputation affects firm responses to resource mobilization opportunities. We theorize that lower-reputation firms are likely to be particularly responsive to resource mobilization opportunities because they are otherwise constrained. By contrast, higher-reputation firms have access to greater resource supply and may self-restrain demand. We test these arguments in the context of venture capital (VC) firms raising investment funds. We indeed find that lower-reputation VCs are more responsive to opportunities presented by recent successes. Unexpectedly, we find that high-reputation VCs are more responsive to market-wide heat. Through multi-method follow-on analyses, we propose that while recent successes constitute "windows of opportunity" upon which firms act with individual discretion, hot market conditions serve as "waves of opportunity," exerting a push on the resource mobilization of all firms and influencing their propensity toward scaling up.Managerial SummaryWe explore how low- and high-reputation venture capital (VC) firms respond to fundraising opportunities such as recent successes or hot market conditions. We show that low-reputation VCs are more likely to fundraise from limited partners in response to firm-specific "windows of opportunity" (such as after a portfolio company IPO) because it is a rare chance to attract resource provider attention. By contrast, high-reputation firms are more likely to fundraise at their own pace, regardless of short-term successes. However, we unexpectedly find that high-reputation firms are more likely than low-reputation ones to take advantage of market-wide "waves of opportunity" (i.e., hot markets), likely because they benefit from increased fundraising process efficiency. Our study illustrates how hot market periods may be unusually advantageous fundraising opportunities for high-reputation firms and may be a key driver of when such firms scale up.