Who Can Span Industries? The Relationship among Category Spanning, Organizational Performance, Organizational Status, and Egocentric Uncertainty in the U.S. Venture-Capital Industry

This study examines how organizational status and egocentric uncertainty mitigate the negative effects of category spanning on organizational performance. Category spanning often leads to negative outcomes due to resource constraints and audience confusion. We focus on category spanning as an atypical combination of categories and identify two moderating factors, namely organizational status and egocentric uncertainty, that can attenuate these negative effects. First, we argue that high-status organizations involved in category spanning are less likely to confuse audiences by being perceived as distinctive and innovative, thereby reducing the likelihood of incurring penalties typically associated with such activities. Second, egocentric uncertainty enables similar resource allocation across categories, diminishing the usual downsides of category spanning without necessarily increasing audience confusion. To test our hypotheses, we analyzed U.S. venture-capital industry data from 2008 to 2016. Our main variables included the atypicality of the portfolio of investing industries, the status of the VC firm, and the average stage of invested companies. We tested the effects of these variables on the number of successful exits by utilizing negative binomial regression models. The findings support our theoretical contentions: high-status VC firms or those investing in ventures’ early stages are less susceptible to the negative ramifications of category spanning on successful exits compared to their respective counterparts.