Whom You Know Matters: Venture Capital Networks and Investment Performance

56 Pages Posted: 15 Dec 2004

See all articles by Alexander Ljungqvist

Alexander Ljungqvist

Stockholm School of Economics; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Research Institute of Industrial Economics (IFN)

Yael V. Hochberg

National Bureau of Economic Research (NBER); Rice University - Jesse H. Jones Graduate School of Business

Yang Lu

AQR Capital Management, LLC

Multiple version iconThere are 3 versions of this paper

Date Written: September 2005

Abstract

Many financial markets are characterized by strong relationships and networks, rather than arm's-length, spot-market transactions. We examine the performance consequences of this organizational choice in the context of relationships established when VCs syndicate portfolio company investments. VC firms that enjoy more influential network positions have significantly better fund performance, as measured by the proportion of investments that are successfully exited through an IPO or sale to another company. Similarly, the portfolio companies of better-networked VC firms are significantly more likely to survive to subsequent financing and to eventual exit. Finally, we provide initial evidence on the evolution of VC networks.

Keywords: Venture Capital, Networks, Syndication, Investment Performance

JEL Classification: G24, L14

Suggested Citation

Ljungqvist, Alexander and Hochberg, Yael V. and Lu, Yang, Whom You Know Matters: Venture Capital Networks and Investment Performance (September 2005). Available at SSRN: https://ssrn.com/abstract=631941 or http://dx.doi.org/10.2139/ssrn.631941

Alexander Ljungqvist (Contact Author)

Stockholm School of Economics ( email )

111 60 Stockholm
Sweden

Centre for Economic Policy Research (CEPR)

London
United Kingdom

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

Yael V. Hochberg

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Rice University - Jesse H. Jones Graduate School of Business ( email )

6100 South Main Street
P.O. Box 1892
Houston, TX 77005-1892
United States

Yang Lu

AQR Capital Management, LLC ( email )

Greenwich, CT
United States

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