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Social capital of venture capitalists and start-up funding

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Author Info

  • Oliver Alexy

    ()

  • Joern Block

    ()

  • Philipp Sandner

    ()

  • Anne Ter Wal

    ()

Abstract

How does the social capital of venture capitalists (VCs) affect the funding of start-ups? By building on the rich social capital literature, we hypothesize a positive effect of VCs’ social capital, derived from past syndication, on the amount of money that start-ups receive. Specifically, we argue that both structural and relational aspects of VCs’ social networks provide VCs with superior access to information about current investment objects and opportunities to leverage them in the future, increasing their willingness to invest in these firms. Our empirical results, derived from a novel dataset containing more than 1,500 first funding rounds in the Internet and IT sector, strongly confirm our hypotheses. We discuss the implications of our findings for theories of venture capital and entrepreneurship, showing that the role and effect of VCs’ social capital on start-up firms may be more complex than previously argued in the literature. Copyright The Author(s) 2012

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Bibliographic Info

Article provided by Springer in its journal Small Business Economics.

Volume (Year): 39 (2012)
Issue (Month): 4 (November)
Pages: 835-851

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Handle: RePEc:kap:sbusec:v:39:y:2012:i:4:p:835-851

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Web page: http://www.springerlink.com/link.asp?id=100338

Related research

Keywords: Venture capital; Social capital; Start-ups; Social networks; Structural holes; G24; L26; M13; L26;

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References

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  1. Sapienza, Harry J. & Manigart, Sophie & Vermeir, Wim, 1996. "Venture capitalist governance and value added in four countries," Journal of Business Venturing, Elsevier, vol. 11(6), pages 439-469, November.
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Citations

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Cited by:
  1. A. Antoci & F. Sabatini & M. Sodini, 2014. "Online and offline social participation and social poverty traps. Can social networks save human relations?," Working Paper CRENoS 201404, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.
  2. Aleksandar Bradic, 2012. "The Role of Social Feedback in Financing of Technology Ventures," Papers 1301.2196, arXiv.org.

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