A small world of US seed investors. An analysis of the quality of VCs network

Venture capitalists (VCs) provide firms that have high potential growth and entrepreneurial talent with finance and business skills to exploit market opportunities. In order to accommodate the high levels of uncertainty arising from this activity, VCs have developed various strategies, one of which is establishing networks with other VCs through the syndication of investments.

Centrality in the network is the extent to which an investor controls network flows. If networks provide channels for the exchange of information and resources then central investors can use these channels to reach key information and resources that enhance knowledge and power.

VCs occupying central positions in a network are viewed as potentially powerful because of their greater access to good investment opportunities (obviously, the possibility to fully exploit these opportunities is depending on the investor-specific characteristics). In other terms, network centrality could be a driver/predictor of VCs future performance.

For this analysis I use CrunchBase database, considering all the seed investments made in the US since 1974. First, I define inter-actor networks considering investors’ memberships in VC co-investments and organize my data into socio-matrices. Second, using network analysis methodology, I’m able to describe the relationships that exist among different actors and to calculate their betweenness. In particular, this measure refers to how often an actor’s network provides the shortest route to reach the other actors, regardless of the direction of the relationship (in or out).

Below you can find the results of the analysis. The order of the investors is based on their centrality (betweenness).

Top 50 US seed investors, based on network centrality.

500 Startups

Y Combinator

Techstars

SV Angel

Google Ventures

Start-Up Chile

Great Oaks Venture Capital

Kima Ventures

DreamIt Ventures

Plug & Play Ventures

First Round

FundersClub

Andreessen Horowitz

Lerer Hippeau Ventures

Solidus Company

Founder Collective

CrunchFund

David Cohen

BoxGroup

Felicis Ventures

New Enterprise Associates

Entrepreneurs Roundtable Accelerator

Atlas Venture

Fabrice Grinda

Innovation Works

True Ventures

Mark Cuban

TEEC Angel Fund

Chattanooga Renaissance Fund

Capital Innovators

Betaspring

Dave McClure

Lightbank

MassChallenge

AngelPad

Quotidian Ventures

SoftTech VC

Rock Health

FLOODGATE

Portland Seed Fund

The Brandery

RRE Ventures

Alexis Ohanian

AlphaLab

JumpStart Inc.

Alchemist Accelerator

VegasTechFund

Greylock Partners

gener8tor

General Catalyst Partners

In conclusion, there are some important issues to be highlighted. First, network access does not automatically imply access to information; the latter also depends on the quality of network ties. Second, the ability to exploit network information, or rather, network opportunities, is conditioned by investors’ “absorptive capacity”: i) when the absorptive capacity is high, centrality is likely to result in high firm performance; ii) when absorptive capacity is low, the centrality-performance relationship is likely to be less positive or even negative.