Venture Capital Communities

Abstract:     
We analyze the social network of venture capital (VC) firms formed through co-syndications and develop new evidence on the composition of VC syndicates. We show that while VCs can have several syndicate partners, they exhibit strong preference for some partners over others, leading to spatial agglomerates. These "communities" are soft border conglomerates whose members are probabilistically more likely to interact within than outside. We characterize the number, identity, composition, and stability of communities. We show that preferred partner choice reflects {\it both} assortative and disassortative matching. Partners are similar on dimensions of functional style and heterogeneous on dimensions of influence and reach. Finally, firms sourcing capital from community VCs are more likely to exit successfully. The results are consistent with learning-by-doing models in which familiar partners aid learning, or with incomplete contracting models where familiarity mitigates hold up and free riding by facilitating trust and reciprocity.

Number of Pages in PDF File: 31

Keywords: Venture Capital, Syndication, Community Detection, Social Networks, Boundaries of the Firm

JEL Classification: G20, G24

working papers series