Organizational roles and network centrality in the U.S. venture capital industry

Previous studies suggest that positions of centrality in a network of strategic alliances provide access to other network members' knowledge and enhance firms' own knowledge creation capabilities. These benefits translate into valuable performance outcomes. However, only few prior studies considered how roles that firms play in alliance networks affect their performance. This chapter addresses the following question: How do firms' roles vis-à-vis their alliance partners affect the benefits they derive from positions of network centrality? I distinguish between two types of centrality in a network: centrality based on the role of invited partner - status centrality - and centrality based on the role of inviting partner - hub centrality. Using the venture capital (VC) industry as an empirical setting, I analyze how status centrality and hub centrality affect firms' viability in the market. I find that status centrality positively affects both access to and quality of deals VC firms are able to participate in, which, in turn, enhances the firms' survival. In contrast, hub centrality limits firm's access to deals and fails to have a positive effect on the quality of deals. It does, however, positively affect status centrality and, through this pathway, enhances organizational survival. This research indicates that effect of network centrality is contingent on the way centrality is attained. Firms' knowledge management strategies that aim at attaining centrality in alliance networks need to consider performance advantages and disadvantages associated with roles the firms play while implementing such strategies.