Money talks: The impact of investors’ networks on entrepreneurs’ success

This paper analyzes the role of investors’ network centrality on the company in which they are investing. Our longitudinal (19682020,
across industries) study shows that an investor with a central network position is beneficial for entrepreneurs, both preIPO and postIPO.
We find that an investor with a central network position increases the likelihood that the investee will obtain subsequent funding, go public, and perform in the long term. We also show that to go public, the startup ideally first needs funding from a central investor – which could even come at the expense of receiving a higher amount from a less central investor – before broadening its investor base to include more investors as it moves toward exit via IPO. We further examine the effect of investor centrality on startup valuation at the time of the IPO and the firm’s short and long term success.

, 2021