VALUING SPANNERS: WHY CATEGORY NESTING AND EXPERTISE MATTER

Organizations need to both differentiate themselves while conforming to their audiences' expectations. To meet this demand, organizations may span different categories. How-ever, valuing spanners is challenging for audiences. We contend that spanners' valua-tion depends on category nesting, as the congruence of informational cues varies between basic categories and subcategories. Furthermore, we expect that more expert audiences find spanners to be more congruent (and hence, more valuable) at a subordi-nate level than at a basic level of categorization. We test our hypotheses using a mixed-methods design in the context of venture capital investments. We analyze observational data on more than 29,000 venture capital deals and develop two experimental studies. Our findings support our hypotheses that subcategory spanning lowers valuation, and that this effect is attenuated as investors' expertise increases. Our experimental studies further show that congruence is a causal mechanism explaining these effects. Our find-ings have important implications for research on organizational conformity and optimal distinctiveness, categorization in markets from an information processing perspective, and the impact of expertise on valuation.