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Social capital of venture capitalists and start-up funding

Author

Listed:
  • 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

Suggested Citation

  • Oliver Alexy & Joern Block & Philipp Sandner & Anne Ter Wal, 2012. "Social capital of venture capitalists and start-up funding," Small Business Economics, Springer, vol. 39(4), pages 835-851, November.
  • Handle: RePEc:kap:sbusec:v:39:y:2012:i:4:p:835-851
    DOI: 10.1007/s11187-011-9337-4
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    File URL: http://hdl.handle.net/10.1007/s11187-011-9337-4
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    References listed on IDEAS

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    1. Mendonca, Sandro & Pereira, Tiago Santos & Godinho, Manuel Mira, 2004. "Trademarks as an indicator of innovation and industrial change," Research Policy, Elsevier, vol. 33(9), pages 1385-1404, November.
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    Citations

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    Cited by:

    1. Block, Jörn H. & Fisch, Christian O. & Hahn, Alexander & Sandner, Philipp G., 2015. "Why do SMEs file trademarks? Insights from firms in innovative industries," Research Policy, Elsevier, vol. 44(10), pages 1915-1930.
    2. F.H.J. Polzin & H.S. Toxopeus & F.C. Stam, 2016. "The wisdom of the crowd in funding: : Information heterogeneity and social networks of crowdfunder," Working Papers 16-15, Utrecht School of Economics.
    3. Antoci, Angelo & Sabatini, Fabio & Sodini, Mauro, 2014. "Online and offline social participation and social poverty traps. Can social networks save human relations?," MPRA Paper 55703, University Library of Munich, Germany.
    4. repec:kap:sbusec:v:50:y:2018:i:2:d:10.1007_s11187-016-9829-3 is not listed on IDEAS
    5. Thorsten Semrau & Christian Hopp, 2016. "Complementary or compensatory? A contingency perspective on how entrepreneurs’ human and social capital interact in shaping start-up progress," Small Business Economics, Springer, vol. 46(3), pages 407-423, March.
    6. Aleksandar Bradic, 2012. "The Role of Social Feedback in Financing of Technology Ventures," Papers 1301.2196, arXiv.org.
    7. repec:kap:sbusec:v:50:y:2018:i:2:d:10.1007_s11187-016-9834-6 is not listed on IDEAS
    8. repec:eee:respol:v:47:y:2018:i:1:p:49-60 is not listed on IDEAS

    More about this item

    Keywords

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

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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