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...Staw and Fox, 1977; Teger, 1980; Arkes and Blumer, 1985; 8Brockner and Rubin, 1985). This tendency may be due to their inability to update prior beliefs with new information (Nisbett and Ross, 1980; =-=Kahneman, Slovic, and Tversky, 1982-=-), failure to treat prior investments as sunk costs (Thaler, 1980; Arkes and Blumer, 1985), framing subsequent investments as opportunities to recover prior losses (Kahneman and Tversky, 1979; Arkes a...

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...etails when they brought up a related issue. In analyzing the data about termination of sequential investments, I followed an iterative, threestage content-analysis process (Glaser and Strauss, 1967; =-=Miles and Huberman, 1984-=-). First, I reviewed the interview transcripts to identify recurrent themes, such as syndication dynamics, emotional commitment to investments, and continuing investment to protect earlier investments...

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... so threatens their legitimacy in the organizational field, limits their external support and resource access, and in turn reduces their survival chances (Meyer and Rowan, 1977; Ruef and Scott, 1983; =-=Hannan and Freeman, 1989-=-). Scott (1987: 498) argued that organizations “do not necessarily conform to [institutional pressures] because they are taken-for-granted, but often because they are rewarded for doing so” (see also ...

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...ects (Staw, 1976, 1981; Staw and Fox, 1977; Teger, 1980; Arkes and Blumer, 1985; 8Brockner and Rubin, 1985). This tendency may be due to their inability to update prior beliefs with new information (=-=Nisbett and Ross, 1980-=-; Kahneman, Slovic, and Tversky, 1982), failure to treat prior investments as sunk costs (Thaler, 1980; Arkes and Blumer, 1985), framing subsequent investments as opportunities to recover prior losses...

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...t in organizational settings in which safeguards, expertise, and incentives should act to increase the effectiveness of decisions. I borrow from organizational decision making (March and Simon, 1958; =-=Pfeffer and Salancik, 1978-=-), institutional, and network theories (DiMaggio and Powell, 1983; Coleman, 1988; Podolny, 2001, 2005; Scott, 2001) to understand multilevel influences on sequential investments in the venture capital...

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...the face of political and institutional constraints. Intraorganizational politics. As organizational members pursue their own interests, multiple goals emerge within the organization (Selznick, 1949; =-=Allison, 1971-=-; Pfeffer and Salancik, 1978). In the case of sequential investments, terminating unsuccessful projects might have negative consequences, such as losing face in the organization or losing employment (...

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...nd, VC firms actively monitor their investments through frequent interaction and office visits with ventures. They typically invest in ventures that are close geographically to facilitate monitoring (=-=Gorman and Sahlman, 1989-=-; Gupta and Sapienza, 1992; Norton and Tenenbaum, 1993; Lerner, 1995; Sorenson and Stuart, 2001). VC firms that specialize in the industry in which the venture operates also enjoy advantages in monito...

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... Brander, Amit, and Antweiler, 2002). Although there is a vast literature that examines different facets of the VC investment process, there has been relatively little work on sequential investments (=-=Admati and Pfleiderer, 1994-=-; Gompers, 1995; Bergemann and Hege, 1998), and these studies have generally examined agency problems. As a result, political and institutional influences on sequential VC decisions have been largely ...

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.... I examined whether the results reflected the decision process, or the unobserved characteristics of ventures, with exponential and Weibull models, adding a gammadistributed random disturbance term (=-=Tuma and Hannan, 1984-=-; Allison, 1995). The results were similar, albeit weaker. Sixth, I excluded buyout or bridge financing investments. Seventh, to rule out the possibility that the number of VC professionals may accoun...

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...83; Scott, 2001). These influences diffuse across an organizational field as organizations imitate each other in their search for legitimacy (DiMaggio and Powell, 1983; Miner and Haunschild, 1995; 11=-=Abrahamson and Rosenkopf, 1997-=-; Guler, Guillén, and MacPherson, 2002). In parallel, persistence in sequential investments may diffuse through mimicry. If a large number of organizations or visible, high-status actors avoid termina...

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... because failure to do so threatens their legitimacy in the organizational field, limits their external support and resource access, and in turn reduces their survival chances (Meyer and Rowan, 1977; =-=Ruef and Scott, 1983-=-; Hannan and Freeman, 1989). Scott (1987: 498) argued that organizations “do not necessarily conform to [institutional pressures] because they are taken-for-granted, but often because they are rewarde...

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...: 498) argued that organizations “do not necessarily conform to [institutional pressures] because they are taken-for-granted, but often because they are rewarded for doing so” (see also Oliver, 1991; =-=Palmer, Jennings, and Zhou, 1993-=-; Westphal and Zajac, 2001; Guler, Guillén, and MacPherson, 2002). These influences may be coercive, normative, or mimetic (DiMaggio and Powell, 1983). 10Coercive influences result from the regulatio...

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...anage the uncertainty surrounding ventures in a number of ways. First, they make sequential investments in multiple rounds of financing (Amit, Glosten, and Muller, 1990; Sahlman, 1990; Gompers, 1995; =-=Bergemann and Hege, 1998-=-). Sequential investments provide VC firms with the option to acquire more information about the venture’s prospects over time. 13VCs can then use the new information to update their beliefs about th...

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...ional,” too close to company,” defensive investment,” “investment size,” “co-investors,” “dilution,” “no exit,” “failure,” “pro-rata share,” “insiders,” and “newcomer to syndication” (Spradley, 1979; =-=Strauss and Corbin, 1998-=-). In the second stage, I organized the labels into 11 emergent 16categories. For instance, “failure” grouped quotes that described how VCs continued investment if termination would imply certain dea...

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...ful ventures is the key to overall portfolio performance. VCs manage the uncertainty surrounding ventures in a number of ways. First, they make sequential investments in multiple rounds of financing (=-=Amit, Glosten, and Muller, 1990-=-; Sahlman, 1990; Gompers, 1995; Bergemann and Hege, 1998). Sequential investments provide VC firms with the option to acquire more information about the venture’s prospects over time. 13VCs can then ...

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...ions. Similarly, decisions on the allocation of capital to different projects, entry into a new market, or the acquisition of another company are typically made in a number of sequential steps (e.g., =-=Kogut and Kulatilaka, 1994-=-; Folta and Miller, 2002). These investments involve an iterative process of information acquisition and incremental commitment over a period of time. Organizational decision makers can continue or ab...

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...decision makers, organizational scholars have found that organizational decision makers also face difficulties in terminating sequential investments (e.g., Haunschild, Davis-Blake, and Fichman, 1994; =-=Staw and Hoang, 1995-=-). The large literature on escalation in individual decision making is of limited help in understanding this problem because most of the evidence was collected through laboratory studies, and does not...

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...a result, a small number of investments account for a large proportion of portfolios’ returns (Scherer, Harhoff, and Kukies, 2000). Only 10-30 percent of venture capital investments result in an IPO (=-=Fenn, Liang, and Prowse, 1997-=-). Between 1969 and 1988, the top 10 percent of venture capital investments accounted for 62 percent of all venture capital returns (Scherer, Harhoff, and Kukies, 2000), and over 30 percent of venture...

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...imonson and Staw, 1992; Heath, 1995; Tan and Yates, 2002), accountability and monitoring (Brockner, Shaw, and Rubin, 1979; Simonson and Staw, 1992; Kirby and Davis, 1998), clear performance feedback (=-=Garland, Sandefur, and Rogers, 1990-=-), and information on the economic outcomes of decisions (Tan and Yates, 1995). On the other hand, the effectiveness of such safeguards may be limited in the face of political and institutional constr...

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...evidence is more limited (see Staw, 1997, for a review). On the one hand, organizations have at their disposal several safeguards to limit escalation, such as budgets and minimum performance targets (=-=Brockner, Shaw, and Rubin, 1979-=-; Teger, 1980; Simonson and Staw, 1992; Heath, 1995; Tan and Yates, 2002), accountability and monitoring (Brockner, Shaw, and Rubin, 1979; Simonson and Staw, 1992; Kirby and Davis, 1998), clear perfor...

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...be able to avoid individual decision errors for several reasons. First, organizations have at their disposal several safeguards, such as monitoring or incentives that promote rational behavior (e.g., =-=Pommerehne, Schneider, and Zweifel, 1982-=-; Camerer, 1987). Second, organizational decision makers are typically experts in their fields and should be able to tap into their prior experience to avoid repeated decision errors (Roth, 1988). Thi...

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...a systematic tendency to commit to a course of action, even when they receive negative information about future prospects (Staw, 1976, 1981; Staw and Fox, 1977; Teger, 1980; Arkes and Blumer, 1985; 8=-=Brockner and Rubin, 1985-=-). This tendency may be due to their inability to update prior beliefs with new information (Nisbett and Ross, 1980; Kahneman, Slovic, and Tversky, 1982), failure to treat prior investments as sunk co...

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...ckner, Shaw, and Rubin, 1979; Simonson and Staw, 1992; Kirby and Davis, 1998), clear performance feedback (Garland, Sandefur, and Rogers, 1990), and information on the economic outcomes of decisions (=-=Tan and Yates, 1995-=-). On the other hand, the effectiveness of such safeguards may be limited in the face of political and institutional constraints. Intraorganizational politics. As organizational members pursue their o...

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...stitutional influences. Individual decision makers exhibit a systematic tendency to commit to a course of action, even when they receive negative information about future prospects (Staw, 1976, 1981; =-=Staw and Fox, 1977-=-; Teger, 1980; Arkes and Blumer, 1985; 8Brockner and Rubin, 1985). This tendency may be due to their inability to update prior beliefs with new information (Nisbett and Ross, 1980; Kahneman, Slovic, ...

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...es of escalation have focused on individual decision makers, organizational scholars have found that organizational decision makers also face difficulties in terminating sequential investments (e.g., =-=Haunschild, Davis-Blake, and Fichman, 1994-=-; Staw and Hoang, 1995). The large literature on escalation in individual decision making is of limited help in understanding this problem because most of the evidence was collected through laboratory...

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...ets (Brockner, Shaw, and Rubin, 1979; Teger, 1980; Simonson and Staw, 1992; Heath, 1995; Tan and Yates, 2002), accountability and monitoring (Brockner, Shaw, and Rubin, 1979; Simonson and Staw, 1992; =-=Kirby and Davis, 1998-=-), clear performance feedback (Garland, Sandefur, and Rogers, 1990), and information on the economic outcomes of decisions (Tan and Yates, 1995). On the other hand, the effectiveness of such safeguard...

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...ugh frequent interaction and office visits with ventures. They typically invest in ventures that are close geographically to facilitate monitoring (Gorman and Sahlman, 1989; Gupta and Sapienza, 1992; =-=Norton and Tenenbaum, 1993-=-; Lerner, 1995; Sorenson and Stuart, 2001). VC firms that specialize in the industry in which the venture operates also enjoy advantages in monitoring. Prior experience familiarizes VCs with an indust...

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...elihood of terminating the investment should mirror the conditional probability of success over time. But because most actual projects fall between these two extremes in terms of information content (=-=Bowen, 1987-=-), investors may have difficulty terminating sequential investments even when termination is warranted (Coff and Laverty, 2001; Adner and Levinthal, 2004). Sources of Difficulties in Terminating Seque...