Peer Networks in Venture Capital
46 Pages Posted: 14 Dec 2013 Last revised: 8 Jul 2014
Date Written: December 10, 2013
I identify advantages from peer networks in venture capital (VC) investments, estimating large impacts. I use the unique experiment underlying the formation of Harvard Business School MBA venture capitalists and entrepreneurs for identification. Specifically, random section assignment of HBS MBA graduates provides a key exogenous variation for identification. Being socially connected to peer venture capital firms and private equity seeking startups leads to more deal flow, larger assets under management and better performance in the inaugural funds of HBS-executive run venture capital firms. A fortuitous endowment of one additional section-peer entrepreneur leads to raising $23.47M more, and one additional section-peer venture capitalist leads to raising $10.48M more than the average size of HBS funds. In sum, the results on exogenously endowed connections of VCs suggest a strong and important role of connections in determining the success of any future venture capitalist.
Keywords: Entrepreneurial Finance, Venture Capital, Private Equity, Social Networks
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