The Journal of Finance

Networking as a Barrier to Entry and the Competitive Supply of Venture Capital

Published: 05/07/2010   |   DOI: 10.1111/j.1540-6261.2010.01554.x

YAEL V. HOCHBERG, ALEXANDER LJUNGQVIST, YANG LU

We examine whether strong networks among incumbent venture capitalists (VCs) in local markets help restrict entry by outside VCs, thus improving incumbents' bargaining power over entrepreneurs. More densely networked markets experience less entry, with a one‐standard deviation increase in network ties among incumbents reducing entry by approximately one‐third. Entrants with established ties to target‐market incumbents appear able to overcome this barrier to entry; in turn, incumbents react strategically to an increased threat of entry by freezing out any incumbents who facilitate entry into their market. Incumbents appear to benefit from reduced entry by paying lower prices for their deals.

Whom You Know Matters: Venture Capital Networks and Investment Performance

Published: 01/11/2007   |   DOI: 10.1111/j.1540-6261.2007.01207.x

YAEL V. HOCHBERG, ALEXANDER LJUNGQVIST, YANG LU

Many financial markets are characterized by strong relationships and networks, rather than arm's‐length, spot market transactions. We examine the performance consequences of this organizational structure in the context of relationships established when VCs syndicate portfolio company investments. We find that better‐networked VC firms experience significantly better fund performance, as measured by the proportion of investments that are successfully exited through an IPO or a sale to another company. Similarly, the portfolio companies of better‐networked VCs are significantly more likely to survive to subsequent financing and eventual exit. We also provide initial evidence on the evolution of VC networks.

Political Representation and Governance: Evidence from the Investment Decisions of Public Pension Funds

Published: 06/19/2018   |   DOI: 10.1111/jofi.12706

ALEKSANDAR ANDONOV, YAEL V. HOCHBERG, JOSHUA D. RAUH

Representation on pension fund boards by state officials—often determined by statute decades past—is negatively related to the performance of private equity investments made by the pension fund, despite state officials’ relatively strong financial education and experience. Their underperformance appears to be partly driven by poor investment decisions consistent with political expediency, and is also positively related to political contributions from the finance industry. Boards dominated by elected rank‐and‐file plan participants also underperform, but to a smaller extent and due to these trustees’ lesser financial experience.