Network success

Highly networked venture capital funds perform better, according to a new study of US-based VCs during 1980-2003.

by Journal of Finance
Last Updated: 23 Jul 2013

VC funds with well networked parent firms realise significantly better performance as measured by the proportion of portfolio investments that are successfully exited through an IPO or sale. Also, the portfolio companies of better-networked VC firms are more likely to survive several rounds of financing leading to an eventual exit.

VC firms benefit the most from having a wide range of relationships, especially with other heavily networked VC firms. One way VCs can get access to information about deals is by inviting other VCs into their syndicates. VC firms need to think more strategically about the issue of networking as a component of their success and that of their rivals.

A good track record improves a VC's networking power. Three questions remain: what determines whether a VC will choose to network? What are the associated costs? How do they form relationships with influential VCs in the network?

Whom you know matters: venture capital networks and investment
Yael V Hochberg, Alexander Ljungqvist and Yang Lu
Journal of Finance, Vol 62 No 1, February 2007

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