Alumni Networks in Venture Capital Financing

Abstract

One-third of deals in the venture capital market involve a founder and investor from the same university. Venture capitalists are more likely to invest in, and place larger bets on, startups with founders from their alma mater. These deals are more likely to lead to IPOs post-funding. Using VC partner turnover, we show a causal link between education ties and funding likelihood. Marginal startups, identified using the supply of funding as an instrument, have better post-funding outcomes when the founder and VC share an alma mater. Our results imply that university connections facilitate information flow rather than diverting funds toward lower-quality startups.

Keywords: Alumni Networks, Startup Financing, Innovation, IPO, Acquisition

JEL Classification: G24, L26, I23, I24, D82, M13, G32