Overcoming “newness” with ordered legitimacy creation. Michelle Renton, Urs Daellenbach, Sally Davenport Victoria University of Wellington

Strategic alliances, signalling and legitimacy. Forming strategic alliances is one way for firms to acquire needed resources and capabilities. Choi and Shepard (2005) ‘entrepreneurs should invest disproportionate emphasis on the cognitive legitimacy problem of new ventures, [monitor] how key stakeholders perceive the values and goals of the new venture, and attempt to improve affective congruence with them.’ Dacin, Oliver and Roy (2007): Strategic alliances provide or enhance the perceived legitimacy of a firm by signalling the current and future potential of the venture to outsiders.

A typology of the legitimating roles of strategic alliances A typology of the legitimating roles of strategic alliances. (Dacin, Oliver and Roy, 2007)

Research questions. In what way do New Zealand’s high tech new ventures seek to gain increased legitimacy ? How do they use signalling practices to; attract new partners? signal into the broader market place their increased legitimacy resulting from these strategic partnerships?

The research project. Part of a bigger research project - Building our Productivity; Life sciences start ups – generic pharmaceuticals, human nutrition, animal welfare, medical therapeutics, blood products, medical devices and clean fuels. Five companies were pre-commercialisation. Qualitative – interviews with 12 CEO/founders Secondary data collected.

Findings. Companies in the R & D phase had greatest focus on creating investment legitimacy; ‘One of the biggest US based venture capital groups in this area invested in [us]. If you’ve got [these VCs] on board people take notice, you always get the first meeting.’ (company 8) Negative signals were sent for companies unable to find investment (Ferrary and Granovetter, 2009); ‘We’ve had a lot of interest from major offshore VC’s but they require a New Zealand lead, and there’s no New Zealand lead.’ (Company 11)

Findings. Commercialised companies used relational legitimacy to build market and investment legitimacy; Our founder’s network in our main market is exceptional, but critical to our business is the danger of having one main market – we need to diversify.’ (company 6) ‘One potential investor wanted somebody who was independent of us, to say that this was okay. Our now chairman, who wasn’t our chairman then, invested some of his own money and thereby persuaded them that this was good and so they’ve invested.’ (Company 10)

Findings. Examples of mis-aligned signalling exist; ‘We hide behind the fact that we fall into the system of the supplier. The [abattoir] has very highly documented processes and we’re a few pages in their system, but if someone who was a [product] purchaser came and audited our system in its entirety, we would fail.’ (Company 6) ‘We want people to think that they’ve got local backup and are locally supplied, not that we are remote, that’s the trick really …’ (Company 10)

Concluding comments. Companies exhibiting mis-aligned signalling either didn’t have strong relational legitimacy in their emerging markets, and /or their practices did not align with a strategic understanding of how signals could be perceived by key stakeholders. Those with strong relational legitimacy appeared to gain in market and investment legitimacy.

Concluding comments. The evidence suggests that relational legitimacy appears to enhance market and investment legitimacy. For future research - is relational legitimacy a cornerstone legitimacy for new ventures?