Whom You Know Matters: Venture Capital Networks and Investment Performance
New York University (NYU) - Department of Finance; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Research Institute of Industrial Economics (IFN)
Yael V. Hochberg
National Bureau of Economic Research (NBER); Rice University - Jesse H. Jones Graduate School of Business
AQR Capital Management, LLC
Many financial markets are characterized by strong relationships and networks, rather than arm's-length, spot-market transactions. We examine the performance consequences of this organizational choice in the context of relationships established when VCs syndicate portfolio company investments. VC firms that enjoy more influential network positions have significantly better fund performance, as measured by the proportion of investments that are successfully exited through an IPO or sale to another company. Similarly, the portfolio companies of better-networked VC firms are significantly more likely to survive to subsequent financing and to eventual exit. Finally, we provide initial evidence on the evolution of VC networks.
Number of Pages in PDF File: 56
Keywords: Venture Capital, Networks, Syndication, Investment Performance
JEL Classification: G24, L14
Date posted: December 15, 2004
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