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The Influence of Firms’ and Industries’ Legitimacy on the Flow of Capital into High-Technology Ventures

David L. Deeds

Case Western Reserve University, USA

Paul Y. Mang

McKinsey & Company, USA

Michael L. Frandsen

Juniata College, Huntingdon, PA, USA

This article examines the influences of firms’ and industries’ legitimacy on the flow of resources into new technology ventures in emerging industries. We first present a model of the determinants of a new technology venture’s legitimacy, which considers its founders, its management team and the media attention it receives. A model of sources of industry legitimacy is developed, with multiple measures of both sociopolitical and cognitive forms of legitimacy.We test our ideas on a sample of 106 initial public offerings from biotechnology ventures during the emergence of the industry between 1981 and 1993. Our results demonstrate the vital role of sociopolitical and cognitive legitimacy at both firm and industry levels in attracting resources for new technology ventures.

Key Words: acquisition • capital • emerging industries • entrepreneurship • legitimacy • technology ventures

Strategic Organization, Vol. 2, No. 1, 9-34 (2004)
DOI: 10.1177/1476127004040913
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