When do entrepreneurs form intermediary relationships? A study of start-ups that use venture capital law firms in fundraising

This study examines how start-ups utilize venture capital (VC) law firms as intermediaries to facilitate interactions with venture capitalists, focusing on the start-up’s perspective and decision-making process. We argue that start-ups engage intermediaries as a strategic method to manage the intricate matchmaking challenges that emerge in investment relationships. We test our arguments using data on financing deals in which some start-up companies use VC law firms as intermediaries—a context that exhibits substantial relationship formation but has yet to be systematically examined through the start-up’s perspective. Our findings show that start-ups are more likely to work with VC law firms in environments with scarce capital, where there is a heightened need for finding and evaluating suitable partners. Furthermore, start-ups are drawn to intermediaries in situations where the internal dynamics of collaboration necessitate a careful evaluation of terms to ensure relationship stability. This research contributes to entrepreneurship studies by elucidating the strategic motivations behind start-ups’ choice to be brokered and identifying key factors influencing these decisions. Moreover, it provides deeper insights into the roles of intermediaries in market creation and the dynamics of relationship formation in the entrepreneurial ecosystem.