Syndication Networks and the Spatial Distribution of Venture Capital Investments

49 Pages Posted: 11 Apr 2000

See all articles by Olav Sorenson

Olav Sorenson

Yale School of Management

Toby Stuart

University of California, Berkeley - Haas School of Business; Harvard University - Entrepreneurial Management Unit

Date Written: December 15, 1999

Abstract

Sociological investigations of economic exchange pay particular attention to the manner in which institutions and social structures shape transactions among economic actors. Extending this line of inquiry, we explore how interfirm networks in the US venture capital (VC) market from 1986 to 1998 affect the spatial patterns of exchange. We present evidence suggesting that geographic and industry spaces represent natural boundaries that contain the transmission of information about potential investment opportunities. In turn, the highly circumscribed flow of information within these spaces contributes to the geographic- and industry-localization of venture capital investments. After establishing this finding, the majority of our empirical analyses document that the social networks in the venture capital community ? built up through the industry's extensive use of syndicated investing ? facilitate the diffusion of information across geographic and industry boundaries and therefore expand the spatial radius of exchange. We show that VCs that build axial positions in the industry's co-investment network can obtain information from distant sources and hence expand the scope of their investments over time. Consistent with the sociologist's general view of markets, variation across actors in their positioning within the structure of a market appears to differentiate market participants in their ability to overcome boundaries that otherwise would curtail exchange.

JEL Classification: G24, G30, M13

Suggested Citation

Sorenson, Olav and Stuart, Toby E., Syndication Networks and the Spatial Distribution of Venture Capital Investments (December 15, 1999). Available at SSRN: https://ssrn.com/abstract=220451 or http://dx.doi.org/10.2139/ssrn.220451

Olav Sorenson (Contact Author)

Yale School of Management ( email )

135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States

Toby E. Stuart

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

Harvard University - Entrepreneurial Management Unit ( email )

Cambridge, MA 02163
United States

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