Social networks and venture capital investments around the world

Abstract

Constructing social networks of venture capital (VC) firms using social ties of VC partners in 36 countries, we find that VC firms that are central in the networks tend to lead VC investment syndicates, and this relation is more pronounced in countries with weaker institutional environments and investor protection. We show evidence that central VC firms achieve superior performance as they obtain better access to deal flow and provide more value-added services to portfolio companies. We demonstrate that the positive value of social network centrality is not driven by the mutual existence of investment networks built upon historical investment relationships. Importantly, our results suggest that social networks are one of the key drivers of investment networks.