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Social Capital of Venture Capitalists and Start-Up Funding

Small Business Economics, Vol. 39, Issue 4, pp. 835-885, 2012

28 Pages Posted: 11 Apr 2010 Last revised: 30 Jul 2014

Oliver Alexy

Technische Universität München (TUM), TUM School of Management

Jorn H. Block

University of Trier - Faculty of Management; Erasmus University Rotterdam (EUR) - Institute of Management (ERIM)

Philipp G. Sandner

Frankfurt School of Finance & Management

Anne L. J. Ter Wal

Imperial College Business School

Date Written: March 1, 2011

Abstract

How does the social capital of venture capitalists (VCs) affect the funding of start-ups? By building on the rich social capital literature, we hypothesize a positive effect of VCs’ social capital, derived from past syndication, on the amount of money that start-ups receive. Specifically, we argue that both structural and relational aspects of VCs’ social networks provide VCs with superior access to information about current investment objects and opportunities to leverage them in the future, increasing their willingness to invest in these firms. Our empirical results, derived from a novel dataset containing more than 1,500 first funding rounds in the Internet and IT sector, strongly confirm our hypotheses. We discuss the implications of our findings for theories of venture capital and entrepreneurship, showing that the role and effect of VCs’ social capital on start-up firms may be more complex than previously argued in the literature.

Keywords: venture capital, social capital, start-ups, social networks, structural holes

JEL Classification: G24, L26, M13

Suggested Citation

Alexy, Oliver and Block, Jorn H. and Sandner, Philipp G. and Ter Wal, Anne L. J., Social Capital of Venture Capitalists and Start-Up Funding (March 1, 2011). Small Business Economics, Vol. 39, Issue 4, pp. 835-885, 2012. Available at SSRN: https://ssrn.com/abstract=1586992

Oliver Alexy (Contact Author)

Technische Universität München (TUM), TUM School of Management ( email )

Arcisstr. 21
Munich, 80333
Germany
+49-89-289-52803 (Phone)
+49-89-289-52899 (Fax)

HOME PAGE: http://www.ent.wi.tum.de

Jorn Hendrich Block

University of Trier - Faculty of Management ( email )

D-54296
Germany

Erasmus University Rotterdam (EUR) - Institute of Management (ERIM) ( email )

Burgemeester Oudlaan 50
3000 DR Rotterdam, Zuid-Holland 3062PA
Netherlands

Philipp Sandner

Frankfurt School of Finance & Management ( email )

Sonnemannstraße 9-11
Frankfurt am Main, 60314
Germany

HOME PAGE: http://www.philipp-sandner.de

Anne L. J. Ter Wal

Imperial College Business School ( email )

Tanaka Building
South Kensington Campus
London, London SW7 2AZ
United Kingdom
+44 (0) 20 7594 1460 (Phone)
+44 (0) 20 7594 5915 (Fax)

HOME PAGE: http://www.anneterwal.com

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