“Partner Selection in Co-Investment Networks: Evidence from Venture Capital ” by Yael Hochberg
Northwestern University and NBER
Laura A. Lindsey
Mark M. Westerfield
We examine theories of partner choice in venture capital co-investment networks. We find little evidence of similarity-based matching as a motive for co-investment ties. Rather, VC firms tend to form ties with the best available partner in terms of investment scope and network access, but form ties with partners with dissimilar levels of experience. VCs also use ties to trade capital for value-added resources. Notably, it does not appear that coinvestment ties are formed in order to trade one value-added type resource for another. Instead, our findings suggest that capital can exist outside the firm and be combined effectively with inside expertise or value-added, but the same does not apply to combinations of inside and outside value-added resources.