Whom You Know Matters: Venture Capital Networks and Investment Performance

TLDR

Financial markets are driven by strong relational networks rather than purely transactional interactions. The study investigates how venture‑capital syndication relationships influence investment performance. The authors analyze the structure of VC networks formed through syndication to assess their impact on fund outcomes. Better‑networked VC firms achieve higher exit rates, their portfolio companies are more likely to survive to subsequent financing and exit, and the study documents early evidence of VC network evolution.

Abstract

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 structure in the context of relationships established when VCs syndicate portfolio company investments. We find that better‐networked VC firms experience significantly better fund performance, as measured by the proportion of investments that are successfully exited through an IPO or a sale to another company. Similarly, the portfolio companies of better‐networked VCs are significantly more likely to survive to subsequent financing and eventual exit. We also provide initial evidence on the evolution of VC networks.