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.
(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?