Venture Capital's Network Structure And Financial Return

Syndicate is a form of inter-firm alliance through which venture capitalists invest in certain common new ventures to reduce risks and acquire revenues. For its efficiency in reducing risks, syndication is widely used in business, in particular in the venture capital industry. Contrary to the wide existence of syndication, research on how syndication influences venture capital's investment return is largely inadequate. Venture capital firms are generally embedded in networks such as the syndication network. Comparing with the economic factors, the social factors have a greater impact on their financial returns. More importantly, the wide existence of syndication creates an important research opportunity for examining how the syndication network functions to venture capital's financial performance. This research direction however is also largely ignored. Under this background, we ask the question:does syndicate help reduce risks? How does a syndicate network influence venture capital's financial performance?Following the social network analysis method, we conceptualize a theoretical framework focusing on both relational and structural network constructs and examine how the flow-betweenness, structural holes and degree network centrality of individual venture capital firms in the syndication network influence their financial return.Our regression analysis based on the syndicate network data of 108 venture capitals (1080 joint-investments are involved) ranged from 1987 to 2008 shows that both relational and structural network mechanisms matter to venture capital's financial return.