Olav Sorenson and Toby E. Stuart
Most existing theories of relationship formation imply that actors form highly cohesive ties that aggregate into homogenous clusters, but actual networks also include many “distant” ties between parties that vary on one or more social dimensions. To explain the formation of distant ties, we propose a theory of relationship formation based on the characteristics of “settings,” or the places and times in which actors meet. We posit that organizations form relations with distant partners when they participate in two types of settings: unusually faddish ones and those with limited risks to participants. In an empirical analysis of our thesis in the formation of syndicate relations between U.S. venture capital firms from 1985 to 2007, we find that the probability that geographically and industry distant ties will form between venture capital firms increases with several attributes of the target-company investment setting: (1) the recent popularity of investing in the target firm’s industry and home region, (2) the target company’s maturity, (3) the size of the investment syndicate, and (4) the density of relationships among the other members of the syndicate.