Analyzing VC Influence on Startup Success: A People-Centric Network Theory Approach

We study the impact of venture capitalists on startup success using social network analysis. Using multiple sources, we compile a unique dataset of 3199 US-based technology startups and their board members, from which we generate and analyze the interlocking directorates network (formal network) and the Twitter activity network (informal network). We define three metrics of success: startup funding (collected from Crunchbase), annual sales (collected from OneSource), and return-on-investment (annual sales/funding). We find that startups with more VCs on their board are more centrally located in the formal network, tend to receive greater funding, have greater annual sales, yet a smaller return-on-investment. We also find that VCs are significantly more central in the Twitter network than non-VCs, and they have greater Twitter popularity (number of followers/number of people they follow). Interestingly, VCs tweet significantly less than non-VCs. Our results indicate that VCs carry a significant amount of capital, both financially as well as socially, which they transmit to the startups they become involved with, yet they tend to invest disproportionately to startup revenue (hence lower ROI).