The evolution of inter-organizational networks in venture capital financing

Using a cross-section of Venture Capital (VC) transactions in Germany during the period 1995 to 2005, I analyse the origins of social networks in VC financing and document how they evolve over time. I focus specifically on the industry and investment experience of VCs as a resource to allow for better screening of business proposals and to provide a higher quality of managerial advice to the financed entrepreneur. The results show that forming relationships with partner VCs can represent a way to overcome the absence of relevant industry experience. Upon entering into new industries, and in the case of unsuccessful collaborations, lead investors in VC syndicates tend to explore new partnering opportunities resulting in network expansions. Moreover, with more experience within a given industry, lead investors tend to rely on existing partners.