When Do Collaborative First Moves Diminish Nationality-Based Homophilic Preferences? An Examination of Chinese Venture Capital Investment Syndicates

Abstract

We explore the interplay between homophilic preferences, reciprocity, and societal values in the formation of venture capital investment syndicates in China. Both Chinese and U.S. syndicate lead firms generally prefer including their fellow compatriot firms over comparable non-compatriots in the investment syndicates that they assemble. When a Chinese firm initiates a collaborative first move by including a U.S. firm in an investment syndicate, however, the U.S. firm no longer prefers comparably familiar U.S. firms over the Chinese firm when it subsequently chooses among prospective syndicate partner firms to include in its investment syndicates. In such cases, familiarity triggers impartiality; the experiential trust that was garnered from the collaborative first-move engagement initiated by the Chinese firm diminishes the nationality-based homophilic preferences of the U.S. firm. We do not find similar dynamics when the tables are turned. When a U.S. firm initiates a collaborative first move by including a Chinese firm in an investment syndicate, the Chinese firm subsequently remains partial to fellow compatriot firms that are otherwise comparable to the U.S. firm. The homophilic preferences and identity-based trust between Chinese firms grounded in shared nationality are resilient to any goodwill created by U.S. firms when they initiate collaborative first moves.