Random Network Formation in Entrepreneurial Finance: A Simple Model and Evidence

44 Pages Posted: 14 Aug 2016 Last revised: 29 Oct 2017

See all articles by Ricardo Pasquini

Ricardo Pasquini

Universidad Austral - Facultad de Ciencias Empresariales; Universidad Torcuato Di Tella - School of Government

Virginia Sarria-Allende

IAE Business School - Universidad Austral

Date Written: August 4, 2016

Abstract

We provide an empirical analysis of the investments’ network of investors and startups, using original data from the entrepreneurial finance setting in California. We also propose, and calibrate a two-mode random network formation model. We show that an essential mechanism of the entrepreneurial finance setting: the tendency of investor to invite each other to deals, as in syndicated deals, is able to account for observed properties, including the heavy-tailed distribution in the degree distribution of investors (i.e., serial investors), relatively small average distance and diameter, and clustering. This is achieved without assuming preferential attachment, or any other particular preferences for matching between investors and startups. We discuss implications for market efficiency.

Keywords: Entrepreneurial Finance, Networks, Random Models of Network Formation, Empirical Network Structure, Syndicates, Serial-Investors

JEL Classification: D85, G01, G24, L14, M13

Suggested Citation

Pasquini, Ricardo and Sarria-Allende, Virginia, Random Network Formation in Entrepreneurial Finance: A Simple Model and Evidence (August 4, 2016). Available at SSRN: https://ssrn.com/abstract=2822357 or http://dx.doi.org/10.2139/ssrn.2822357

Ricardo Pasquini (Contact Author)

Universidad Austral - Facultad de Ciencias Empresariales ( email )

Mariano Acosta s/n y Ruta Nac 8
Pilar, Buenos Aires, B1629WWA
Argentina

Universidad Torcuato Di Tella - School of Government ( email )

C1428ATG Buenos Aires
Argentina

Virginia Sarria-Allende

IAE Business School - Universidad Austral ( email )

Buenos Aires
Argentina

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