Venture Capital Networks And Investment Performance

In recent decades,venture capital(VC)has played more and more important roles in Chinese capital market.Comparing VC financing with its alternatives such as banks and angel investors,VCs are proved to provide better value-adding services and play the certification role for the startups.However,due to the lack of public information for the startups,VCs confront with severe asymmetric information problem,which affects their investment performance.Thus,when making an investment,VCs prefer to cooperate with other professional institutions than invest alone since risk aversion and more expertise can be achieved.Thanks to the syndication,networks and strong relationships are widespread among VCs.Based on the theory of social network analysis,this study focuses on investments made by VCs in mainland China in the period of 2000-2011.The results showed that after controlling other characteristics of VCs,investment opportunities,VCs with better position in the network can improve their investment performance as measured by the successful exit rate of investment portfolio,and when taking the characteristics of startups into consideration,it is showed that startups backed by VCs with high centrality are more likely to exit by IPO or MA.In addition,higher centrality of VCs is proved to correlate with higher IPO underpricing of startups.This study not only enriches the application of social network analysis in Chinese venture capital market,but also shed light on the measure which can be used by the startup companies to choose the appropriate VC firms.