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

Abstract

We propose a simple two-mode random network formation model aimed to mimic the properties of an entrepreneurial finance network, and calibrate it with data of a network of startups, and investors of the entrepreneurial finance setting in California. In the model some investors match startups at random, and some others find about investment opportunities by invitations from investors they are connected with. This model helps explains features of the observed network such as its degree distribution, average distance and diameter, and clustering.