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Abstract

This study investigates the impact of power source mismatch of venture capital syndication on the growth performance of new ventures, considering their corporate governance and institutional environment. Using data from listed companies in the small and medium enterprises market in China, we find that ownership-dominated power source mismatch in venture capital syndication enhances new venture growth performance, while status-dominated power source mismatch has the opposite effect. Additionally, the positive performance impact of ownership-dominated power source mismatch is amplified when the venture capital firm with the highest ownership power joins the board and when the new venture is headquartered in a province with a higher degree of marketization.

Plain Language Summary

Venture Capitalist Status Mismatch

This study examines how mismatched power sources in venture capital syndication affect the growth of new ventures, considering corporate governance and the institutional context. Using data from China’s Small and Medium Enterprises Market, it finds that mismatches based on ownership power improve venture growth, while those based on status power hinder it.

Keywords

venture capital syndication power source mismatch marketization institutional environment growth performance

Introduction

High-growth ventures often face power conflicts inside venture capital (VC) syndicates. Ola Electric, India’s largest EV scooter manufacturer, has faced severe strategic gridlock since 2023 due to irreconcilable conflicts within its VC syndicate (Sachdev, 2025). Early investors aggressively pushed for rapid pan-Asian expansion; later-stage investors backed by local conglomerates prioritized regulatory compliance and unit economics sustainability. Similar stories always happen as the growth pains of many new ventures, such as Juul Labs (Maloney, 2024).

Venture capital syndication offers advantages in capital accumulation, risk allocation, information sharing, resource complementarity, and transaction flow interchange (Brander et al., 2002; Lockett & Wright, 2001; Smith & Smith, 2000). Current studies predominantly focus on resource complementarity in syndicated investments while overlooking the potential conflicts arising from power mismatch (opposite advantages across ownership and status within the same VC dyad; Chahine et al., 2012; Ring & Van de Ven, 1992). Ma et al. (2013) and L. L. Wang et al. (2023) examine how power source matching (which refers to a situation where one of the two interdependent parties has both higher ownership and higher status than the other party) affects VC syndication return and exit performance.

However, how does the mismatch between ownership and status affect the growth of nascent firms? What are the underlying mechanisms and institutional contextual conditions? The specificity of new ventures with more complex governance structures and institutional environments has not been explored, where power dynamics may amplify growth impacts (J. Li & Qian, 2013). The moderating role of sub-national marketization differences in emerging economies like China—contexts with distinct institutional variations—has received limited attention (Chan et al., 2010); and the mechanisms through which VC board participation moderates the relationship between power source mismatch and venture growth remain unclear (Burchardt et al., 2016).

The ownership structures influence corporate governance, decision-making, and the strategic direction of firms, particularly in emerging markets (Duong et al., 2024; Tran & Dang, 2021). The concentrated ownership can reduce agency problems and improve firm performance, particularly in contexts with weak regulatory environments (Nwude et al., 2023), and this offers a lens to understand power dynamics in emerging economies.

New firms must adapt to institutional pressures as they grow and expand into new markets and products (Dacin et al., 2010). Policies, regulations, and institutional support all play roles in enhancing or suppressing new ventures’ growth. Institutional conditions may influence venture capital firms’ ability and willingness to provide resources, particularly in the presence of power mismatch, as well as the new ventures’ ability to utilize these resources effectively. Berger and Kuckertz (2018) find that new entrants in status-dominated VC environments can overcome the Matthew effect through specific resource combinations, yet how this interacts with power mismatch is unclear.

Grounded in resource dependence and agency theory, this study explores how power source mismatch influences new venture growth through an institutional environment lens. Resource dependence theory explains why VCs exert influence in syndicates—high-status investors broker access to critical resources. Agency theory, in turn, clarifies how equity ownership translates into formal governance rights. In VC syndicates, these two power sources—status-based influence (RDT) and ownership-based authority (agency)—co-exist and sometimes conflict. Different forms of power mismatch have heterogeneous effects on firm growth. In this paper, we examine the impact of power source mismatch among venture capital institutions on the growth performance of Chinese listed SMEs from 2004 to 2014. This study is grounded in China’s unique institutional context: as an emerging economy, China exhibits significant sub-national variations in marketization (e.g., government-market relations, legal environments; Shi et al., 2017), and VC syndicates in SME and GEM firms display distinct governance practices (e.g., longer lock-up periods, equity-based board seat allocation). These features provide a natural setting for exploring heterogeneous power mismatch effects but also imply that findings should be extrapolated to other institutional contexts with caution.

We employed a fixed-effects regression approach, and the research results show that ownership-dominated power source mismatch (when one party has dominant ownership, but low status compared to another VC firm that has high-status and low ownership) enhances new venture growth, while status-dominated mismatch (when one party has dominant status, but low ownership compared to another VC firm that has high ownership and low status) hinders it. When the venture capital with the highest ownership power joins the board of directors, the positive correlation between ownership-dominated mismatch and growth is more significant, indicating that venture capital participation in corporate governance affects the power source match mechanism. Additionally, the degree of marketization where the new venture is headquartered strongly strengthens the relationship between ownership-dominated mismatch and growth performance.

This paper extends the current literature on venture capital syndication power source mismatch by focusing on new ventures and the concept of power source mismatch. It addresses calls for research in venture financing regarding power allocation in syndications and expands the scope to include corporate governance post-investment. Furthermore, this study explores the contingent nature of the effects of power mismatch on new ventures under diverse sub-national institutional environments. Our findings provide practical insights on how to arrange investment proportions and ownership structures based on each venture capital institution’s status, determine under which power mismatch circumstances venture capital firms should join the board of directors for optimal performance, and predict how the institutional environment impacts the relationship between syndicate member power mismatch and new venture performance.

Literature Review and Hypotheses Development

Power is a central construct in interorganizational relationships and corporate governance, particularly in venture capital (VC) syndicates where multiple investors coordinate to influence a firm’s strategic direction. To build a coherent theoretical foundation, we integrate two influential perspectives: resource dependence theory (Pfeffer & Salancik, 2003) and agency theory (Jensen & Meckling, 1976). These complementary frameworks offer a dual-lens to examine how different sources of power, ownership and status, shape VC syndicate dynamics and new venture performance.

From a resource dependence perspective, power arises from control over critical resources (e.g., capital, expertise, networks). “Power is a property of the social relation; it is not an attribute of the actor” (Emerson, 1962, p. 32). The interplay of dependencies raises questions about power equality and inequality. Casciaro and Piskorski (2005) argue that the nature of mutual dependence determines that power dependencies should be studied in the form of “a dyad,” and that this relationship is bi-directional. That is, based on the same kind of resources, organization A depends on organization B, organization B is also dependent on organization A, but the degree of dependence is not the same, and accordingly, the power of B over A and the power of A over B are not equivalent.

In contrast, agency theory emphasizes the contractual and governance-based mechanisms by which principals (e.g., investors) seek to align agents’ (e.g., entrepreneurs’) behavior with their own goals, especially under conditions of information asymmetry. Here, power stems from formal rights and incentives embedded in equity ownership, such as board representation and control over strategic decisions. Ownership power, in this sense, reflects the legal authority to monitor, influence, and discipline the management team, thereby reducing agency costs (Fama & Jensen, 1983).

We argue that both forms of power, status and ownership coexist and interact within VC syndicates. Ownership-based power aligns with formal governance mechanisms and is best explained through agency theory, while status-based power reflects informal influence and is better captured through resource dependence theory.

Inter-organizational resource dependency can be multifaceted, depending on different types of resources, which translates to organizations having different dependencies (French et al., 1959). Power mechanisms based on different resources will be mutually restrained; one kind of resource dependence will be more advantageous than the other resource dependence (Guler, 2007). Power matching or mismatching based on different resource dependencies can affect organizational behavior through different mechanisms.

In venture capital syndication, three possible power dynamics can occur—power source match, ownership-dominant power source mismatch, and status-dominant power source mismatch (Chen et al., 2010). Power source match refers to a situation where one of the two interdependent parties has both higher ownership and higher status than the other party. In this case, one party dominates in both sources of power, and the dependencies are consistently matched and maintained. However, power source mismatch can also exist, and one resource dependency may prevail over another, which means that one source of power may hinder or overshadow the effectiveness of another source of power (Hillman et al., 2009). In this case, two types of mismatches can occur: Ownership-dominated power source mismatch and Status-dominated power source mismatch.

Ownership reflects the possession and control of resources; while status is a kind of referent power (Stuart et al., 1999), reflecting the influence on other members. Most studies on venture capital assume that venture capital syndicates can act in unison under financial contract (Chahine et al., 2012), that is, the contract can ensure seamless co-operation between venture capital firms involved in syndicates, since, under a financial contract, the venture capital with higher ownership will also have more legal power. However, due to the limitations and incompleteness of the contract, the inadequate knowledge of venture capital institutions, and the complexity of the investment environment, the members of the venture capital syndication cannot be simply ranked according to the size of ownership, which means that social factors may affect the interactions and influences between members of the venture capital syndication (Hallen, 2008; Nahata, 2008).

Existing venture capital studies confirm that venture capital industry status can mitigate new ventures’ financial uncertainty during the value assessment process (Hsu, 2004; Podolny, 2001; Sun et al., 2024) and increase the likelihood of a successful exit. Venture capital firms’ industry status is an invaluable intangible asset, which is earned through repeated transactions and interactions between venture capital institutions and other participants in the market, and can be viewed as an important mechanism to alleviate the burden of information asymmetry (Hsu, 2004). From the investment institutions themselves, industry status is an important factor when predicting the viability and effectiveness of fund-raising, project selection, and enterprise development (Fried & Hisrich, 1995). Venture capital firms with high industry status have a wide range of sources to gather information, can access and identify better potential investment projects, and promote the growth and survivability of new businesses through their value- added services. Other investors are also more willing to co-invest with venture capital firms with higher status: first and foremost, the higher status and reputation will endorse and to a certain extent, guarantee the quality of their investment projects, which sends strong signals to other investors that they are more likely to obtain a better return on their investments; on the other hand, a venture capital syndication that has a member with high industry status can promote better joint investment partnerships, build interorganizational relationships, expand network resources, and obtain future opportunities for business exchanges (Metrick & Yasuda, 2010; Sun et al., 2019).

The Impact of Power Source Mismatch on New Venture Growth Performance

In venture capital syndicates, ownership-dominated power source mismatch occurs when a lower-status VC holds greater equity ownership than a higher-status co-investor. From an agency theory perspective, this ownership stake confers formal governance rights, such as board representation and decision-making authority, that help mitigate agency problems and align the VC’s incentives with the new venture’s long-term success (Fama & Jensen, 1983; Jensen & Meckling, 1976). These governance mechanisms are especially important in later-stage ventures, where capital needs and strategic complexity increase.

At the same time, the presence of high-status syndicate members contributes important intangible benefits, such as reputation signaling, access to elite networks, and market credibility. Drawing from resource dependence theory, this status-based influence enhances the venture’s ability to attract additional resources (e.g., follow-on funding, strategic alliances; Pfeffer and Salancik, 2003). In an ownership-dominated mismatch, these complementary power sources can operate synergistically: the low-status but high-ownership VC ensures strong contractual governance, while the high-status but low-ownership VC provides relational resources that enhance venture legitimacy.

We argue that interorganizational power dynamics in new ventures have similar but more pronounced effects than in early-stage ventures. In new ventures, there is often an increasing number of venture capital members in the syndicate, which increases the likelihood of issues due to more diverse and potentially conflicting interests. Research highlights that strong syndication networks facilitate information sharing and trust, thereby mitigating some of the issues stemming from diverse interests (R. Li et al., 2024). The competency and communication quality of owners and managers become increasingly complex and difficult as a venture grows and matures. These challenges can be addressed through the absorptive capacity of ventures, enabling them to assimilate and exploit knowledge from their VC partners (Jeong et al., 2020).

Compared to early-stage ventures, new ventures require much more capital because they are at a stage where they can grow by developing additional products, entering new markets, and acquiring other companies. Venture capitalists are often able to invest in a more smaller early-stage investments than in new ventures, since they need to invest much larger sums in new ventures. In other words, later-stage investments require more resources and would impose a much greater loss if the venture does not perform well. Studies also suggest that later-stage investments require not just capital but also strategic guidance from VC firms, as they often play a critical role in navigating growth opportunities and risks (Amini et al., 2022; Khan et al., 2021; R. Li et al., 2024). The risk of investing in new ventures translates to a more hands-on approach and much more involvement with management as well as other investors. This hands-on approach is often supported by the reputational capital of high-status VCs, which adds value to the venture by attracting further investments and strengthening market confidence (Jeong et al., 2020).

If syndicate members do not work well together, it becomes harder to reach consensus when it comes to key decisions, which means that a clear leadership structure is required and hierarchies within interorganizational power dynamics must be established. Effective leadership structures are critical for managing syndicates, as they help balance power and ensure alignment between diverse stakeholders, reducing conflicts (Nwude et al., 2023; Tran & Dang, 2021). Unlike early stages, where the founders must focus on survival and convincing investors to have faith in their future, new ventures are already quite successful; the founders often have much more confidence in their business decisions, and they are more likely to play a key role in communicating between the syndicate members. Having a clear power structure becomes more important in this case because more key players with higher stakes are in play. Research underscores that founders in new ventures often act as mediators, leveraging their relationships with VCs to align goals and drive strategic decisions (Khan et al., 2021). New venture capitals are also responsible for helping founders recruit more investors. The reputational effects of well-networked VCs can significantly aid in attracting additional investors, as these networks often act as signals of venture quality (Jeong et al., 2020).

Although several studies have examined the impact of power source match on new venture performance, power source mismatch and its direct performance effects are also significant and warrant further exploration. In the event of a power source mismatch in a venture capital syndication, regardless of the form of mismatch, it indicates that the high-status venture capital firm does not have the highest ownership, whereas a low-status venture capital firm is a more dominant owner. To identify the form of power source mismatch, we must closely examine when the advantages of ownership and status cancel each other out, and determine which form of power retains a residual effect. In other words, to explore the nuances of power source mismatch and potentially determine their performance impact, it is crucial to ascertain whether ownership or status dominates the overall power dynamics. Recent studies suggest that understanding these mismatches requires examining the interplay between legal ownership and network influence, as both impact venture outcomes differently (Nwude et al., 2023; Tran & Dang, 2021).

The Impact of Ownership-Dominated Power Source Mismatch on the Performance of New Ventures

In the case of venture capital syndication, there is a power source mismatch in the joint investment if one party’s power and power advantage is offset by its status power disadvantage, which means that another party has status power advantage.

For venture capital firms with lower status, they can still maintain their legal contractual power according to their ownership percentage, because they have an undisputed advantage in ownership. Ownership concentration often ensures better alignment of interests, reducing agency problems and fostering cooperative decision-making (Nwude et al., 2023; Tran & Dang, 2021). For venture capital firms with high-status in the industry, they have abundant investment experience, broad social network reach and scope, as well as superior exit timing selection techniques, which bring invaluable technical know-how, knowledge sharing capabilities, and provision of resources to the venture capital syndication. Therefore, the ownership-dominated power source mismatch not only maintains the cooperative and collective behaviors based on legal contractual power in venture capital syndication, but also brings seasoned management experience and abundant complementary resources to the new venture. As a result,

H1: Ownership-dominated power source mismatch of venture capital syndication is positively related to the growth performance of new ventures.

The Impact of Status-Dominated Power Source Mismatch on the Performance of New Ventures

The high-status venture capital firm enjoys unrivaled reputational advantages, which means that it’s likely that the high-status firm, despite having ownership disadvantages, will ignore the ownership rights and decision making power of other syndicate members (Zhelyazkov & Tatarynowicz, 2021). Gray et al. (2023) note that status disparity in multiparty syndicates acts as a double-edged sword, attracting newcomers under low risk but deterring them under high risk.

This misalignment creates a problematic power dynamic. High-status VCs may exert soft power or influence strategic decisions despite lacking the formal rights to do so, undermining the contractual control of the ownership-dominant VC. As a result, the governance structure becomes ambiguous, and intra-syndicate coordination may break down. Such unbalanced power relations can generate strategic misalignment, delay decisions, and erode trust, particularly in environments where clear authority is needed to navigate risk and resource allocation.

The lower status syndicate members can only rely on their ownership power, but because their ownership advantage is not substantial enough to make a significant difference, lower status members often lose their ability to protect their voice and rights. Status mismatches often result in inefficiencies, as high-status firms may dominate decision-making processes, disregarding the legitimate ownership power of lower-status partners (R. Li et al., 2024).

Furthermore, lower status members do not have strong motivation to go against a high-status member because highly reputable venture capital firms are assumed to have significantly more industry experience—they are more likely to have successful exits, select high-quality projects, and be capable of participating in new venture management to ensure optimal performance outcomes. In addition, having good relationships or partnerships with high-status venture capital firms can help low status firms gain access to a wide range of information sources that would otherwise be unavailable. The motivation to “marry” high-status partners weakens the incentive of low-status members to protect their own rights in venture capital syndication, therefore disrupting the role of legitimate ownership power in the interorganizational cooperation and coordination process. Ultimately, due to ineffective coordination and communication caused by status-dominated power source mismatch, new ventures may receive confusing or conflicting directions from the syndicate, which will have an overall negative impact on their growth performance. Therefore, we hypothesize that:

H2: Status-dominated power source mismatch of venture capital syndication is negatively related to the growth performance of new ventures.

Venture Capital Participation in New Venture Corporate Governance

Venture capital’s participation in new venture management is an indispensable part of the venture capital process (Burchardt et al., 2016), which includes human resources, business strategy development, external relationship coordination, and promotion of mergers and acquisitions or an IPO, and may maintain this involvement even after a firm goes public (Iliev & Lowry, 2020). Venture capital institutions participate in the management of the new ventures they invest in has several benefits, such as reducing agency costs by intervening and preventing incumbent new venture managers’ self-interested behaviors and moral hazards, provide unique skills, knowledge, experience, network resources, etc., that would be otherwise inaccessible to the new venture management team (Hong et al., 2020; Shuwaikh et al., 2022).

There are three ways for venture capital firms to actively participate in the new venture’s management: (a) enter the board of directors, (b) select specific new managers or replace current managers, and (c) enter the management team directly. Entering the board of directors is one of the most effective and most common ways. When venture capital institutions participate via the board of directors, they gain the opportunity to affect decisions regarding asset restructuring, additional investments, business strategy development, employee management, and many other major decisions. In addition, board of directors is a main way of monitoring the risk of investment (Yerramilli, 2011), and it helps venture capital firms with understanding incumbent management behavior and mitigating information asymmetry between the investor and the investee from within the inner workings of corporate governance, which all in all minimizes and prevents unnecessary agency risks.

Research has shown that the greater the investment, paired with a higher degree of participation in corporate governance, the greater the possibility of new venture success (Lee et al., 2011). This is because with a higher degree of participation in management, comes more attention and effort dedicated to the enterprise, which translates to more opportunities and motivation to provide value-added services for the firm. This is also accompanied by increased concern about the firm's future development and growth. Venture capital participation in new ventures can significantly increase the probability of successfully introducing new products to the market (Van der Vegt et al., 2010), and enhance the ability of the investee to negotiate with stakeholders (Finkelstein & Hambrick, 1990).

Dating back to Selznick’s (1949) account of the Tennessee Valley Authority and referring to resource dependence theory (Pfeffer, 1987), an organization can decrease uncertainty by having a representative of the source of constraint on its board of directors, thus trading a certain level of power for resources and support. New ventures sometimes seek to add a venture capitalist to the board to maintain current sources and future sources of funding and to signal legitimacy. Having a venture capital representative serving on the board provides a source of constraint with a vested interest in the dependent new venture’s growth and success. For new ventures, board ties are probably some of “the most empirically examined form of inter-corporate relation” from a resource dependence perspective (Pfeffer, 1987, p. 42). For venture capital syndication, not all members of the syndicate can enter the board of directors of a new venture, only a small number of members from powerful venture capital institutions can participate in the corporate governance of new ventures. This privilege is usually reserved for seed round funders or series A funders. Compared to venture capital firms that do not hold seats on the board, venture capital firms that do hold board seats have more decision power in the new venture, and they can protect their own interests more easily by participating in all aspects of corporate governance. As a result, board membership strengthens a venture capital firm’s ability to maintain its power in venture capital syndication, which in turn, can also positively affect the new venture’s performance. Gloor et al. (2020) find that startups with more VCs on the board attract more funding but do not improve sales efficiency.

When the dominant VC investor (i.e., the highest-ownership party in the syndicate) holds a board seat, the ownership hierarchy within the syndicate is reinforced, legitimizing power dynamics and reducing conflict. This legitimacy enhances collaboration, strengthening the positive effect of ownership-dominated power mismatch on new venture growth. Thus, we propose:

H3: The positive relationship between ownership-dominated power mismatch and new venture growth is stronger when the highest-ownership VC holds a board seat.

On the contrary, if the venture capital with the highest ownership power is on the board, this situation could actually intensify challenges for status-dominated mismatches. The presence of the high-ownership investor on the board can challenge the informal legitimacy of those syndicate members who primarily wield status power. In other words, with the top owner actively involved in governance, any high-status investor lacking a substantial stake might find its influence checked by the board’s emphasis on ownership rights. Under these conditions, status-dominated power mismatches may become even more problematic: the imbalance between legitimate (ownership-based) power and informal (status-based) power is brought into sharp relief within the boardroom. This can foster conflict and confusion, as high-status board members without commensurate ownership may clash with the high-ownership members’ priorities. Miscommunication and strategic discord could ensue, harming the venture’s performance. Therefore, we hypothesize that:

H4: The negative effect of status-dominated power mismatch on growth is stronger when the highest-ownership VC holds a board seat.

Sub-National Institutional Contingencies

As noted in Ma et al. (2013), there is strong evidence that power source mismatch between venture capital institutions in venture capital syndication affects the performance outcomes of the syndicate, as well as the growth and development of new ventures; however, there have not been any studies that examine the potential effects of new ventures’ external institutional environment. L. Wang and Jiang’s (2018) study provides initial evidence that power source match is an important phenomenon in China but does not delve deeper into the contextual factors. We argue that the context in which the new venture operates may influence the ability and willingness of venture capital firms to provide resources, especially with the presence of power mismatch within the venture capital syndicate, as well as the ability of new ventures to effectively utilize the resources they receive from venture capital.

Marketization is defined as the level of institutional development to achieve reforms toward a more efficient and market-oriented economy (Cuervo-Cazurra & Dau, 2009; Fan et al., 2007). Traditionally, in economic geography literature, the focus has largely been placed on cross-country differences (Coughlin et al., 1991), but sub-national or within-country institutional differences have become a topic of interest in recent international business literature (Chan et al., 2010; Meyer & Nguyen, 2005).

As aforementioned, ownership-dominated power source mismatch can help maintain the cooperative and collective behaviors based on legitimate power in venture capital syndication; it also brings technical know-how, veteran managerial experiences, and ample complementary resources to the new venture. This cooperative relationship between venture capital and new ventures and the performance benefits can be enhanced if the new venture operates in a province that has a high degree of marketization. For example, one of the most important indicators for marketization level in each province is the development of market intermediaries and legal environment (Fan et al., 2010), which means that the province has sufficient protection of producer legal rights, intellectual property rights, consumer rights, as well as better mobility of labor and more commercialization of technological innovations. When venture capital firms know that the new venture they want to invest in is headquartered in a province with higher degrees of marketization, the venture capital firms are more likely to feel that forming an investment relationship is safe, and there are fewer uncertainties in the institutional environment that can potentially throw a wrench into the partnership or hinder the growth and prosperity of the new venture. Therefore, we hypothesize:

H5: Marketization level strengthens the positive correlation between ownership-dominated power source mismatch and the growth performance of new ventures.

On the other hand, where the venture capital syndication exhibits status power source mismatch, the high-status venture capital firm enjoys significantly more reputational advantages than ownership legitimacy power, it is likely that the high-status mismatch member will ignore the ownership rights and decision-making power of other syndicate members. When this type of within-syndicate conflict occurs over a new venture operating in a province with a higher marketization level, it is likely that lower-status syndicate members will feel more protected and safer and therefore more likely to choose to rely on their ownership power to assert themselves. Since most low-status members’ ownership advantage is not substantial enough to make a significant difference, lower-status members often lose their ability to protect their rights and power. The failure to retaliate in a more institutionally safe environment can potentially lead to additional conflict and worsen the existing issues. This can further lead to miscommunication with the new ventures receiving investments and aggravate the power struggle between the two parties. In this case, the new ventures are even less likely to fully enjoy the resources provided by the venture capital syndication. Therefore, we hypothesize:

H6: Marketization level exacerbates the negative correlation between status-dominated power source mismatch and the growth performance of new ventures.

Methods

Sample and Data

In this study, venture capital syndication is defined as two or more venture capital firms that make investments in the same year to the same listed company. The venture capital investments are identified as institutional investments made during various stages of new venture development, so there is no distinction between venture capital and private equity. The goal of the current study is to examine new ventures’ growth performance after the introduction of investment institutions. Recent research highlights that approximately 15% of VC-backed firms continue to raise capital from VCs in the 5 years post-IPO (Iliev & Lowry, 2020). Therefore, we have decided to include listed firms on the SME (Small and Medium Sized Enterprise) board in the ShenZhen Stock Exchange, as well as the GEM (Growth Enterprise Market) platform on the Hong Kong Stock Exchange. The size and scale of these firms are relatively small; they are in the growth stage, and there is great growth and development potential. The sample of our study covers SMEs that have been public prior to 2012 and continued to operate until at least 2014, excluding ST companies and ventures that have not had venture capital syndication involvement. We obtained data on 703 listed firms on the SME board between 2004 and 2012 and 356 listed firms on GEM between 2009 and 2012. A total of 1,059 unique firms are included. Our final sample consists of a panel dataset of 7,751 firm-year observations collected from the CSMAR (China Stock Market and Accounting Research) database and Wind database, two leading databases in conducting research on China research (J. C. Wang et al., 2019; Xu et al., 2019).

The 2004 to 2012 period was a critical phase for China’s venture capital (VC) ecosystem and new venture development. During this time, the Small and Medium Enterprises (SME) Board (launched in 2004) and Growth Enterprise Market (GEM, launched in 2009) were established, creating formal channels for new ventures to access public capital and attract VC syndication. This era marked the early institutionalization of China’s VC industry, with syndication practices transitioning from informal collaborations to structured, rule-based partnerships (Sun et al., 2019; L. Wang & Jiang, 2018).

Further, the dataset captures significant sub-national institutional variation in China’s marketization process (Fan et al., 2007, 2010). The marketization index reflects regional differences in governance, legal systems, and market intermediaries during 2004 to 2012—an era of rapid but uneven institutional reform. These variations are central to testing our hypotheses about how marketization moderates the effects of power source mismatch. A recent study on VC’s strategy adjustments across Chinese provinces confirms that marketization indices are still relevant (Ren et al., 2024), even as China’s institutions have evolved.”

Dependent Variable

Firm Growth Performance: Profit metrics such as return on assets (ROA), return on equity (ROE), and earnings per share (EPS), are commonly used to measure firm performance (Endri et al., 2021; Harahapa et al., 2020; Saleh et al., 2020). In this study, we focus on new venture growth performance, which is measured by the EPS growth rate of listed companies. We specifically use EPS growth because it is particularly relevant for new ventures in assessing their post IPO performance and survivability. Traditional profit metrics, while valuable, do not capture the full picture for new venture’s performance potential. A relatively young firm that demonstrates strong growth in earnings over time can outpace competitors, and when profits eventually materialize, they are often substantial. The impact of earnings growth is exponential—even when there are minor changes in earnings growth year by year, the compounded effect over time is significant. Investors often look at EPS growth to assess new venture capital gains in the future because firms with higher earnings growth offer higher capital gains, due to the compounding effect. Considering that venture capital's returns are based on equity valuation, and one of the most important factors for equity valuation is EPS, we believe that EPS growth is the most appropriate proxy variable when reporting growth performance. We deliberately chose a 2-year lag mainly for the lock-up period of venture capital. On average, the lock-up period of China’s venture capital after an IPO is between 1 and 3 years (compared to the 3 to 6 months period in the US, not mandated by the SEC). We find that power source mismatch has no significant effect on the growth performance after 3 years, but has a significant impact on growth performance after 1 and 2 years. Therefore, 2 years is a crucial time frame in the Chinese context for venture capital to be eligible to cash in on their long-awaited returns, and it dictates the near-term planning for all related parties.

Independent Variables

Power source measures Ownership-dominated power (O): This paper uses the shareholder equity ratio of venture capital firms in listed companies as a measure of ownership power. The higher the equity ownership proportions of venture capital institutions, the greater the power of ownership.

Status-dominated power (S): Status is represented by the location of the focal venture capital firm within the overarching social network of venture capital firms. Reputation is an important intangible asset that reflects the external stakeholders’ perception and evaluation of the ability venture capital firms to create value, where status is a good indicator of the venture capital institution’s hierarchical position within the industry’s network (Hochberg et al., 2007), which is measured by Degree Centrality, commonly used in literature involving the concept of network centrality. This paper uses degree centrality to measure the status power of a venture capital firm. The sum of the network ties generated by all its investments becomes the degree centrality of the venture capital firm, as shown in the formula:

C_{it =} \sum_{1}^{j} (n_{jt} - 1)

(1)

By referring to Ma et al. (2013), we sum up the degree centrality of each venture capital investor that made investments in a given year, and divide each investor’s degree centrality to calculate the status power of each venture capital investor. The calculated variable is a continuous variable ranging from 0 to 1, as shown in the formula:

S_{it} = C_{it} / \sum_{i = 1}^{k} C_{it}

(2)

$S_{it}$ is the status power of the venture capital firm i in the year t, k represents the number of institutional investors making investments in the year t.

Power Source Mismatch: According to Van der Vegt et al. (2010) findings on team level power asymmetry, dyadic pairs of team members are used as the unit of measurement, then the sum of all pairs in a team is calculated and aggregated on the team level. Similarly, we measure the power source mismatch between each pair of members in venture capital syndicates, and then add the sum of the two different power matches to aggregate on the venture capital syndicate level. The measurement steps are as follows:

i. In year t, in the syndication of venture capital investment of the listed company k, N number of venture capitalists are put into dyadic pairs, forming p pairs of member combinations, where p = $C_{N}^{2}$ ;

ii. In each dyadic pair, i is defined as the member with higher ownership power in, j represents the other party, $(O_{i} - O_{j}) > 0$ ; determine the power match type of each pair and calculate the combined power match value, Omis (Ownership power source mismatch) value, Smis (Status power source mismatch) value:

If $(S_{i} - S_{j}) < 0$ , and $| O_{i} - O_{j} | > | S_{i} - S_{j} |$ ,

then there is ownership power source mismatch;

$Omi s_{p =} (O_{i} - O_{j}) + (S_{i} - S_{j});$ Otherwise $Omi s_{p} = 0$ ;

If $(S_{i} - S_{j}) < 0$ , and $| O_{i} - O_{j} | < | S_{i} - S_{j} |$ ,

then there is status power source mismatch;

$Smi s_{p =} (O_{i} - O_{j}) + (S_{i} - S_{j});$ Otherwise $Smi s_{p} = 0$

iii. Calculate the sum of each dyadic pair’s Omis value and Smis value, then divide by the number of pairs p, to obtain the two independent variables (ownership power source mismatch, and status power source mismatch) for listed company k in year t. As shown in the formulas below:

Omi s_{kt} = \sum_{1}^{p} Omis / p

(3)

Smi s_{kt} = \sum_{1}^{p} Smis / p

(4)

Moderating Variables

Venture Capital Participation in New Venture Corporate Governance: If a venture capital firm participates in a new venture’s corporate governance, then one or more seats on the board of directors of the listed firm belong to the venture capital institution. We match the names of the members of the board of directors of new ventures with the names of employees of venture capital firms that have the highest ownership power and status power within the venture capital syndicate. A dummy variable is created, where 1 = highest ownership or highest status venture capital holds a seat on the board of directors of the new venture; 0 = highest ownership or highest status venture capital does not hold any seats on the board of directors of the new venture.

Marketization Index: To examine the moderating effect of institutional development, we use the marketization index from existing literature (Cordeiro et al., 2013; Jia, 2014; J. Li & Qian, 2013; Markóczy et al., 2013; Peng et al., 2015). The index is calculated based on the assessment of major components of the Chinese market system: five dimensions (relationship between government and business, private economy development, product market development, factor market development, and legal system and law service intermediaries) are included in this measure. The quantitative measurement of these components is then calculated to demonstrate the progress of the transition toward a market economy in each sub-national region (Province). Overall, this method results in a comprehensive index that serves as a proxy for the institutional development of each province (Fan et al., 2007, 2010).

Control Variables

According to existing research, the performance of new ventures is influenced by many factors at the firm level and the venture capital syndication level. On the firm level, we include the following control variables: industry, firm size, debt ratio, net operating profit, net cash flow, ownership concentration (the largest shareholder equity ratio), and board independence (percentage of independent directors; Im & Sun, 2026).

On the venture capital syndication level, we control for venture capital syndication investment size and venture capital syndication member familiarity (Sorenson & Stuart, 2001). The greater the overall size of the venture capital syndication investment into the new venture, the more the impact it has on the level of venture capital institutions’ involvement with the new venture, and thus the power match of the venture capital syndication will also have a greater impact on the new venture’s performance, therefore, we control for the venture capital syndication investment size and measure it by taking the natural log of the total number of shares held by venture capital institutions in a venture capital syndicate. We also control the familiarity between the venture capital syndication members developed through previous collaborations. Members of the venture capital syndication could have invested in other new ventures together before they formed venture capital syndications.

Prior interactions can lead to higher levels of trust and commitment among members, which will affect the degree of cooperation and willingness to cooperate in the venture capital syndication (Taglialatela & Barontini, 2025). Similar to the concept of developing the measurement for degree centrality, venture capital institutions may be involved in other joint investments outside of the venture capital syndication. To control this, we examine the sub-networks formed between members of venture capital syndication based on prior joint investments. The degree of familiarity of the venture capital syndication is calculated as follows:

Fam i_{jt =} \sum_{1}^{n_{jt}} C_{irt}

(5)

$Fam i_{jt}$ represents the familiarity between members within the venture capital syndication of listed firm j in the year t; r represents the sub-network formed by venture capital firm of listed firm j through additional joint investment in firms other than j in the give year; $C_{irt}$ is the degree centrality of venture capital firm i within the sub-network r; $n_{jt}$ represents the number of venture capital institutions that has invested in listed firm j in year t.

Model Design

A fixed effect regression model of the following Equation 6 is constructed in order to test the hypotheses. EPSg is the growth performance of listed firms in year t + 2; Omis and Smis are the two power match variables. Control Variable represents the control variables of year t defined in Table 1.

\begin{matrix} EPS g_{t + 2} = α + β_{1} Omi s_{t} + β_{2} Smi s_{t} \\ + \sum_{q = 3}^{m} β_{q} (qth Control Variabl e_{t}) + ε \end{matrix}

(6)

Table 1.

Variable List and Descriptions.

Variable type	Variable name	Description
Dependent Variable	Firm growth performance	Listed firm j’s EPS growth rate in year t + 2
Independent Variable	Ownership power source mismatch	Venture capital syndication ownership power source mismatch
Independent Variable	Status power source mismatch	Venture capital syndication status power source mismatch
Moderating Variable	Marketization index	Province level institutional development index
Moderating Variable	Highest ownership venture capital firm board presence	Dummy variable, 1 = The highest ownership venture capital holds a seat on the board of directors of the new venture; 0 = no board seat
Control Variable	Industry	Standardized growth performance in a given industry
	Firm size	Natural log of listed firm’s total assets
	Debt ratio	Listed firm’s debt ratio
	Net operating profit	Listed firm’s net operating profit
	Net cash flow	Natural log of listed firm’s net cash flow (If negative, natural log of the absolute value, then reverse the sign)
	Venture capital syndication investment size	Natural log of venture capital syndication total number of shares held
	Venture capital syndication familiarity	Venture capital syndication members’ level of collaboration in additional joint investments
	Equity concentration	Largest shareholder equity ratio
	Board independence	Ratio of independent directors

In order to examine the role of venture capital presence in the board of directors of new ventures and its moderating effect on the relationship between venture capital syndicate power source mismatch and listed firms’ growth performance, as well as to examine the contingency effects of new venture headquarter provincial marketization level on the relationship between venture capital syndicate power source mismatch and listed firm’s growth performance, the following formulas (7) and (8) are constructed:

\begin{matrix} EPS g_{t + 2} = α + β_{1} Omi s_{t} + β_{2} Smi s_{t} + β_{3} fovc d_{t} + β_{4} Omi s_{t} \\ \times fovc d_{t} + β_{5} Smi s_{t} \times fovc d_{t} \\ + \sum_{q = 6}^{m} β_{q} (qth Control Variabl e_{t}) + ε \end{matrix}

(7)

\begin{matrix} EPS g_{t + 2} = α + β_{1} Omi s_{t} + β_{2} Smi s_{t} + β_{3} minde x_{t} \\ + β_{4} Omi s_{t} \times minde x_{t} + β_{5} Smi s_{t} \times minde x_{t} \\ + \sum_{q = 6}^{m} β_{q} (qth Control Variabl e_{t}) + ε \end{matrix}

(8)

Results

Descriptive Statistics and Correlations

In our sample, the mean values of ownership dominated power source mismatch and the status dominated power source mismatch are 0.887 and −0.064, respectively, which are significantly different from the means (0.01 and 0.09) reported in the studies of Ma et al. (2013). This indicates that the power source mismatch situation in venture capital syndication is quite different between China and the United States. The average shareholding of the largest shareholder is 18.433%, indicating that the listed SMEs have a moderate level of equity concentration. Table 2 presents the descriptive statistics and the correlation matrix for the variables.

Table 2.

Descriptive Statistics.

Variable	Mean	Std.Dev	1	3	4	5	6	7	8	9	10	11	12	13
Firm growth performance	−2.518	401.8	1
Asset	21.09	0.833	−0.0190	1
Leverage	32.94	24.06	−0.0080	0.430***	1
Net operating profit margin	4.436	11.89	0.0030	−0.055***	−0.236***	1
Net cash flow	0.060	0.126	0.000	−0.0020	−0.067***	0.303***	1
Board independence	0.367	0.0500	−0.032***	0.077***	−0.041***	0.411***	0.322***	1
Equity concentration	18.43	21.19	0.020	−0.0260	−0.055***	0.0100	−0.0130	0.104***	1
venture capital Syndication investment size	16.87	1.565	0.0040	0.471***	0.343***	−0.108***	0.090***	−0.086***	−0.058***	1
Venture capital syndication familiarity	48.61	174.6	0.0030	0.298***	0.029**	0.183***	0.184***	0.293***	0.064***	0.295***	1
Marketization index	7.945	1.709	0.0130	0.0230	−0.041***	−0.105***	−0.039***	−0.144***	0.0200	−0.061***	−0.055***	1
Highest ownership venture capital firm board presence	0.085	0.278	0.0110	0.129***	0.079***	0.080***	0.181***	0.264***	−0.115***	0.434***	0.215***	−0.091***	1
Ownership-dominated power source mismatch	0.887	3.420	0.0110	0.179***	0.074***	0.066***	0.155***	0.264***	−0.0170	0.508***	0.238***	−0.038***	0.459***	1
Status-dominated power source mismatch	−0.063	0.269	−0.0120	−0.106***	−0.0070	−0.121***	−0.135***	−0.238***	0.0150	0.176***	−0.178***	0.0170	−0.071***	−0.031***

p < .01. ***p < .001.

Regression Analysis

We test our hypotheses using a stepwise regression approach to systematically evaluate the incremental effects of key predictors and moderators. Model 1 is a baseline model including only control variables (firm size, leverage, etc.) to establish a reference for subsequent analyses. Model 2 adds the first independent variable, ownership-dominated power source mismatch (Omis) to test H1. Model 3 adds the second independent variable, status-dominated power source mismatch (Smis) to test H2. Model 4 introduces the interaction term between Omis and board participation (hovcbomis) to test H3, and Smis and hovcb (hovcbsmis) to test H4. Model 5 adds the interaction term between Omis and marketization index (mindexomis) to test H5, and Smis and mindex (mindexsmis) to test H6. Model 6 combines all interaction terms to evaluate the joint effects of board participation and marketization.

Table 3 provides the results of the panel fixed effects regression analysis with new venture growth performance (EPSg) as the dependent variable. Hypothesis 1 suggests that ownership-dominated power source mismatch of venture capital syndication is positively related to the growth performance of new ventures. The coefficient of ownership power mismatch is significantly positive in model 2 (β = .143, p < .001), therefore, hypothesis 1 receives strong support. Hypothesis 2 suggests that status-dominated power source mismatch of venture capital syndication is negatively related to the growth performance of new ventures. The coefficient of status power mismatch is significantly negative in model 3 (β = −.083, p < .1), therefore, hypothesis 2 receives support.

Table 3.

Fixed Effects Regressions on Firm Growth Performance (EPS)

Variable	Model 1	Model 2	Model 3	Model 4	Model 5	Model 6
Asset	−0.201 (−0.21)	−0.23 (−0.21)	−0.207 (0.21)	−0.262 (−0.21)	−0.165 (−0.21)	−0.19 (−0.21)
Leverage	0.099 (−0.18)	0.102 (−0.18)	0.106 (−0.18)	0.128 (−0.18)	0.128 (−0.18)	0.149 (−0.18)
Net operating profit margin	−0.065 (−0.05)	−0.06 (−0.05)	−0.062 (−0.05)	−0.065 (−0.05)	−0.051 (−0.05)	−0.059 (−0.05)
Net cash flow	−0.017 (−0.04)	−0.016 (−0.04)	−0.016 (−0.04)	−0.021 (−0.04)	−0.012 (−0.04)	−0.015 (−0.04)
Equity concentration	−0.262 (−0.41)	−0.222 (−0.41)	−0.285 (−0.41)	−0.355 (−0.41)	−0.391 (−0.41)	−0.448 (−0.41)
Board independence	−0.075 (−0.09)	−0.077 (−0.09)	−0.066 (−0.09)	−0.071 (−0.09)	−0.055 (−0.09)	−0.059 (−0.09)
Venture capital syndication Investment size	−0.011 (−0.08)	−0.155*** (−0.09)	0.03 (−0.09)	−0.083 (−0.1)	−0.064 (−0.1)	−0.032 (−0.1)
Venture capital syndication familiarity	−0.013 (−0.03)	−0.006 (−0.03)	−0.022 (−0.03)	−0.013 (−0.03)	−0.021 (−0.03)	−0.016 (−0.03)
Marketization index (mindex)	0.23 (−0.21)	0.228 (−0.21)	0.222 (−0.21)	0.2 (−0.21)	−0.065 (−0.22)	−0.074 (−0.22)
Highest ownership venture capital firm board presence (hovcb)	0.074*** (−0.04)	0.06 (−0.04)	0.074*** (−0.04)	−0.009 (−0.06)	0.046 (−0.04)	0.002 (−0.06)
Ownership−dominated power source mismatch (omis)		0.143***−0.04)		0.057 (−0.05)	0.170***−0.04)	0.093*** (−0.05)
Status−dominated power source mismatch (smis)			−0.083*** (−0.05)	−0.088*** (−0.05)	−0.042 (−0.05)	−0.054 (−0.05)
hovcb × omis				0.135* (−0.05)		0.116* (−0.05)
hovcb × smis				0.014 (−0.05)		0.061 (−0.05)
mindex × omis					0.128***−0.03)	0.118***−0.03)
mindex × smis					0.045 (−0.04)	0.069*** (−0.04)
R2_	.012	.025	.015	.035	.051	.058
rho	.505	.52	.529	.552	.551	.564

Note. Standard errors are reported in parentheses. Two-sided.

p < .05. ***p < .001.

We examine hypotheses 3 and 4 by adding the interaction terms Highest Ownership Venture Capital Firm Board Presence hovcb × omis and hovcb × smis in model 4. The coefficient of the hovcb × omis interaction term is significantly positive (β = .135, p < .05), which means that when the highest ownership venture capital enters the board of directors, it strengthens the positive correlation between ownership-dominated power source mismatch and the growth performance of new ventures. Hypothesis 3 receives strong support. However, the interaction term hovcb × smis is not significant; it suggests that hypothesis 4 does not receive enough support. One possible explanation is that the decision-making dynamics within Chinese firms are still largely based on legitimate power instead of referent power. Venture capital firms with high status in the industry are not able to effectively affect decision-making even if they enter the board of directors. In addition, most of the venture capital investments in China at this time are financial investments, many of which lack the motivation to deal with the internal management of the new ventures they invest in. Therefore, lacking ownership dominance, it is less likely for high-status syndicate members to assert themselves and create conflict.

We then examine hypotheses 5 and 6 by adding the interaction terms mindex × omis and hovcb × smis in model 6. The coefficient of the mindex × omis interaction term is significantly positive (β = .118, p < .001), which means that the marketization level of the province in which the new venture is headquartered strengthens the positive correlation between ownership-dominated power source mismatch and the growth performance of new ventures; therefore, hypothesis 5 received strong support. The coefficient of the mindex × smis interaction term is significant but opposite of the hypothesized direction (β = .069, p < .1), therefore, hypothesis 6 does not receive support. It is possible that in the Chinese context, the effect of the institutional environment on new venture growth performance is much stronger than the effect of the potential conflict and miscommunication caused by venture capital status-dominated power source mismatch. Since it is likely that Chinese firms respect legitimate power derived from ownership and financial contribution more than referent power, the status power source mismatch becomes less of an issue when the institutional environment is supportive and conducive for venture capital firms and new ventures to form mutually beneficial relationships. The referent power of high-status members is less likely to be emphasized and abused.

We note that the R² values in our fixed effects regressions range from .012 to .058, which are relatively low. This is common in fixed effects models analyzing firm-level panel data, where a significant portion of variance is explained by unobserved time-invariant firm heterogeneity (e.g., unique business models, founder characteristics) that is absorbed by the fixed effects (Ozili, 2023). While the R² values reflect limited explanatory power of the included variables relative to total variance, the statistical significance of our key predictors (e.g., ownership-dominated power source mismatch, interaction terms) suggests that the hypothesized relationships remain robust even after accounting for firm-specific unobserved factors.

The ρ value in Table 3 represents the proportion of unobserved heterogeneity at the firm level to the total variance. For example, the ρ value of .564 in Model 6 indicates that 56.4% of the variance in EPS growth rate is explained by firm-specific time-invariant factors (such as industry characteristics or management style), while the remaining 43.6% is accounted for by time-varying variables included in the model and random errors. A high ρ value validates the applicability of the fixed-effects model—by controlling for firm heterogeneity, the model can more accurately capture the impact of time-varying factors like power mismatch on corporate growth.

A further examination of the interaction effects shows that board participation from the highest ownership venture capital significantly moderates the relationship between ownership-dominated power source mismatch and the growth performance of new ventures; and new ventures' provincial marketization level significantly moderates the relationship between ownership-dominated power source mismatch and the growth performance of new ventures (Figures 1 and 2).

Figure 1.

The moderating effects of VC enter board on power mismatch and growth performance.

Figure 2.

The moderating effects of marketization on power mismatch and growth performance.

Robustness Tests

Although our fixed effect regression could address the time-invariant endogeneity concerns, we further conduct two-stage least squares regressions, which produce unbiased coefficient estimates (Semadeni et al., 2014). We assume that the distance between venture capital and focal new venture could affect both ownership power source mismatch and status power source mismatch, but this variable does not affect the new venture’s performance, therefore the distance related variables could be a good instrumental variable. Assume that the distance between venture capital and focal new venture could affect both ownership power source mismatch and status power source mismatch, but this variable does not affect the new venture’s performance, the distance-related variables could be a good instrumental variable (Coval & Moskowitz, 1999). We choose to use the number of venture capital firms whose headquarters are more than 200 km from the invested ventures as the instrumental variable and use an alternative dependent variable, sales growth, as a proxy for firm growth performance. The results of two-stage least squares regressions show that although the effect of status power source mismatch has weakened, ownership power source mismatch remains significant. Overall, the effects of the two mismatches are mostly consistent in the same direction as our original results.

In order to increase the reliability of our findings, we conduct a robust test on our results. Venture capital is highly concentrated in the high-tech sector, so the most targeted industries are usually biotech, telecommunications, online media, and other non-traditional and innovative industries with the potential to be pioneers; therefore, our findings are likely to be affected by the industries in which the new ventures operate. Adapting Finkelstein and Hambrick’s (1990) approach to examining performance dependent variables, we use the standardized firm growth performance as a dependent variable in the robustness test. Using the Global Industry Classification System (GICS), we take the average of all listed firms’ growth performance in each industry, and then subtract the industry average from each firm’s growth performance, which results in a standardized measure of a listed firm’s growth performance, relative to the level of growth in a given industry. We have rerun our regression analyses with the standardized dependent variable, and the results remain unchanged.

In addition, we recognize that EPS growth is but one form of growth performance for new ventures. We attempt to strengthen our findings by examining other growth performance indicators, such as sales growth, and the results remain mostly consistent with EPS growth performance. In this robustness test, we rerun our regression analyses and verify that the two types of power source mismatch have significant effects on the growth performance of the company’s sales, consistent with our original results.

Discussion

Contributions

Our results suggest that ownership-dominated power source mismatch in venture capital syndication enhances the growth performance of new ventures, whereas status-dominated power source mismatch weakens the growth performance of new ventures. When the highest ownership power venture capital in the syndicate enters the board of a new venture, the positive performance effect of ownership-dominated power source mismatch is strengthened. The same moderating effect is also observed when the new venture is headquartered in a province with a higher degree of marketization.

The existing literature on the relationship within venture capital syndications mainly focuses on partner selection and network attributes. Some examples include joint investors’ heterogeneity (Du, 2009; Hochberg et al., 2011), capital background, and their cluster phenomenon (Bubna et al., 2012), and how these factors affect the performance of joint venture investments. The network position (Tykvová, 2007), degree of closeness (Chen et al., 2010; Ma et al., 2013), and geographic distance (Casciaro & Piskorski, 2005; Emerson, 1962; Kolympiris et al., 2011), are closely related to the performance of venture capital syndication investments. After entering an enterprise, venture capital will influence new venture performance through its formal or informal power during the decision-making processes. Our paper shifts the focus from the lens of venture capital institutions and incorporates new venture characteristics; therefore, we broaden current literature by paying attention to not only the dynamics between syndication institutions, but also the relationships between syndication institutions and new ventures via board of directors, and how it will affect the growth of new ventures.

The theoretical contributions of this paper are as follows: This paper examines the concept of power source mismatch in new ventures, which bridges two streams of research in the field of interorganizational relationship—equity structure and status/reputation and fills the research gap in venture capital syndication power allocation in the field of venture financing in post IPO ventures, as well as expanding the scope of existing literature to include the examination of corporate governance post venture capital syndication investments. More importantly, this study explores the contingency nature of the effect of venture capital syndication power mismatch on new ventures under diverse sub-national institutional environments. The findings of this study can also provide practical insights on how (a) to intentionally organize investment and ownership structure according to the status of each venture capital institution when introducing multiple external venture investors to foster ideal growth performance outcomes; (b) to determine under what venture capital syndication power source mismatch circumstances should venture capital firms be invited onto the board of directors for the new ventures to achieve optimal performance; and (c) to predict how the institutional environment that the new venture operates in will impact its growth performance. Future studies are encouraged to delve deeper into the effects of specific institutional characteristics or institutional change over time on the growth and development of new ventures. As market conditions change all around the world, this line of inquiry can be very meaningful.

Practical Implications: The findings of this study provide actionable guidance for venture capital firms, new venture managers, and policymakers, bridging academic insights with real-world applications. For venture capital firms, when forming syndicates, careful balancing of “ownership” and “status” as power sources is critical. If high-status but low-ownership VCs (e.g., well-known but smaller-scale investors) are included, structuring an “ownership-dominated power source mismatch” by allocating higher equity to the larger (potentially lower-status) investor can yield dual benefits: leveraging the high-status firm’s industry resources and reputation while ensuring decision-making efficiency through ownership dominance. This avoids conflicts arising from status-dominated mismatches that hinder new venture growth.

For new venture managers or entrepreneurs, prioritizing syndicates with “ownership-dominated mismatches” and proactively inviting the highest-ownership VC to join the board are strategic choices. This aligns the VC’s interests with the venture’s long-term growth via equity ties, and enhances the VC’s practical support (e.g., resource integration, market expansion) through board participation, amplifying the positive effects of ownership mismatch. Additionally, locating the venture in regions with higher marketization (e.g., provinces with stronger legal frameworks and developed market intermediaries) can reduce coordination costs from power mismatches, further unlocking the growth potential of ownership-dominated structures.

For policymakers, this study highlights the micro-level value of market-oriented reforms. Enhancing regional institutional environments—such as strengthening legal protections, improving market liquidity, and developing intermediary services—can significantly reinforce the positive impact of ownership-dominated mismatches on new ventures. Policymakers may thus prioritize institutional optimization (e.g., refining intellectual property protection, standardizing VC exit mechanisms) to foster synergies between “ownership-status” power dynamics, ultimately driving high-quality growth of new ventures.

Limitation and Future Directions

This paper has some limitations, which show future research opportunities. We examine the concept of power source mismatch in China’s unique institutional environment. But its cross-country generalizability has not been tested, and the research findings should be cautiously generalized to other institutional contexts. This could inspire future research in other emerging economies. Our findings on the marketization as a contingent factor predict that different levels of marketization may be generalizable to other countries characterized by market-based reform on corporate governance and the overarching institutional environment. We also focus on venture capital’s involvement in the later stage of new ventures, while the interaction of founders and venture capitalists in the early stage could have a more important effect on firm performance than the power source mismatch effect in the later stage. It can be fruitful for future studies to find data with new ventures in multiple stages to compare these nuances.

While our dataset captures a critical phase of institutional development in China (2004–2012), future research could extend the analysis to more recent years (Sun et al., 2024) to assess whether the effects of power source mismatch evolve under ongoing marketization reforms. Examining whether similar patterns hold in other emerging economies with varying institutional trajectories would enhance the generalizability of our findings.

Conclusion

Our study sheds light on the intricate dynamics within venture capital syndication, particularly in the context of high-growth new ventures navigating contested strategic paths. We reveal that power source mismatch among venture capitalists significantly impacts new venture growth, with ownership-dominated mismatch fostering growth and status-dominated mismatch hindering it. The involvement of venture capitalists in corporate governance, specifically through board participation, further amplifies these effects. Moreover, the external institutional environment, notably the degree of marketization, plays a crucial role in moderating the relationship between power mismatch and growth performance. These findings, resonating with recent syndicate breakdowns in firms like Ola Electric, underscore the importance of carefully balancing power dynamics within venture capital syndicates and considering the broader institutional context to ensure the success and growth of new ventures.

As the global venture capital landscape continues to evolve—with increasingly complex syndicates and evolving institutions (Sun et al., 2024)—understanding the interplay of ownership and status power and the conditions that influence this interplay becomes ever more important. By addressing these elements, our research contributes to a more nuanced theory of interorganizational power in entrepreneurship and offers practical steps to leverage or alleviate power mismatches for the benefit of new venture growth.

Footnotes

ORCID iDs

Li Wang

Sunny Li Sun

Funding

The authors disclosed receipt of the following financial support for the research, authorship, and/or publication of this article: Sun acknowledges the financial support from the National Natural Science Foundation of China (Grant ID 72232010, 72091311, and 72172154).

Declaration of Conflicting Interests

The authors declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.

Data Availability Statement

Research data available upon request.

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When Venture Capitalists Clash: Exploring the Impact of Ownership and Status Mismatch on New Venture Growth

Abstract

Plain Language Summary

Keywords

Introduction

Literature Review and Hypotheses Development

The Impact of Power Source Mismatch on New Venture Growth Performance

The Impact of Ownership-Dominated Power Source Mismatch on the Performance of New Ventures

The Impact of Status-Dominated Power Source Mismatch on the Performance of New Ventures

Venture Capital Participation in New Venture Corporate Governance

Sub-National Institutional Contingencies

Methods

Sample and Data

Dependent Variable

Independent Variables

Moderating Variables

Control Variables

Model Design

Results

Descriptive Statistics and Correlations

Regression Analysis

Robustness Tests

Discussion

Contributions

Limitation and Future Directions

Conclusion

Footnotes

ORCID iDs

Funding

Declaration of Conflicting Interests

Data Availability Statement

References