A multi-method study of venture capital firm strategy: Resources, specialization, and deliberate emergence

This thesis investigates what drives strategy at United States venture capital firms. These firms work in a turbulent context, and studying their strategy processes may lend insight into how other organizations can develop strategy under uncertain conditions. Many prior studies of venture capital firm strategy examine how internal knowledge resources influence firm specialization. This thesis views the venture capital firm as one element within a larger system, and examines the influence of other actors---most notably the firm's capital suppliers---on firm strategy. An initial qualitative study of firm strategy processes finds that venture capitalists are bifurcated strategists: they insist on carefully controlled planning for their portfolio companies, while using more emergent strategies on their own behalf. It also finds that capital suppliers constrain the strategies of younger or less powerful firms. A follow-up longitudinal quantitative study combines niche theory and resource dependence theory to understand firm specialization. The findings of these two studies suggest that: (1) as new venture capital firms lack power relative to their capital suppliers, their search is constrained, hence they are impeded from moving to new sectors to take advantage of opportunities; (2) firms that can switch sectors are able to diversify, which may enhance firm survival; and (3) powerful firms are less constrained by their capital suppliers, which allows them to use deliberately emergent strategies. While each study makes individual contributions to our understanding of the venture capital empirical context and the strategy literature, together they highlight an important theoretical link: resource dependence can sometimes constrain firms' search opportunities and, in so doing, can limit their use of emergent strategies.