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Whom You Know Matters: Venture Capital Networks and Investment Performance

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  • YAEL V. HOCHBERG
  • ALEXANDER LJUNGQVIST
  • YANG LU

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.

Suggested Citation

  • Yael V. Hochberg & Alexander Ljungqvist & Yang Lu, 2007. "Whom You Know Matters: Venture Capital Networks and Investment Performance," Journal of Finance, American Finance Association, vol. 62(1), pages 251-301, February.
    • Handle: RePEc:bla:jfinan:v:62:y:2007:i:1:p:251-301
    DOI: 10.1111/j.1540-6261.2007.01207.x
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