Do venture investors with the biggest and best networks end up producing the best returns? An academic paper from a few years ago by Yael Hochberg, Alexander Ljungqvist, and Yang Lu titled “Whom You Know Matters: Venture Capital Networks and Investment Performance” (embedded at the bottom of this post) suggests that is the case. They looked at historic venture returns and found that “better-networked VC firms experience significantly better fund performance,” as measured by how many of the companies in their portfolios exited via an IPO or acquisition.
A venture firm’s network in the study was defined as being made up of all the other venture firms who co-invested with it in funding rounds. The more co-investors a venture firm has, the better its network. The better its network, the better its overall returns. The correlation between the size of a venture firm’s network and its returns may have something to do with better access to deal flow, talent, advisers, potential customers, and potential exits.
If this is true, then who are the most connected venture firms and angel investors today? Vijay Dondeti, a graduate student in bioinformatics, applied the analysis in the Hochberg paper to about 2,700 investors in CrunchBase who participated in over 3,300 startup funding rounds between 2006 and 2008. He scored each investor based on how well connected they are to other investors as well as how well-connected their co-investors are to other investors. “In summary,” says Dondeti, “to get a high score, you need to co-invest often with others that also co-invest often.”
So which venture investors have the best networks? Here are the top 10:
1. Draper Fisher Jurvetson 2. Sequoia Capital 3. Accel Partners 4. Intel Capital 5. First Round Capital 6. Dag Ventures 7. New Enterprise Associates 8. Kleiner Perkins Caufield & Byers 9. Benchmark Capital 10. Ron Conway
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