It's Not What You Know, But Who You Know
DDVC #59: Where venture capital and data intersect. Every week.
👋 Hi, I’m Andre and welcome to my weekly newsletter, Data-driven VC. Every Thursday I cover hands-on insights into data-driven innovation in venture capital and connect the dots between the latest research, reviews of novel tools and datasets, deep dives into various VC tech stacks, interviews with experts, and the implications for all stakeholders. Follow along to understand how data-driven approaches change the game, why it matters, and what it means for you.
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Welcome back to another episode of the “Insights From the Data” series where I summarize useful research for founders and VCs. Today, I’m excited to share a recent study called “Alumni Networks in Venture Capital Financing”.
Major Findings
Prominent Alumni Connections: Approximately 1/3 of VC deals involve a startup founder and a VC partner who graduated from the same institution.
Alma Mater Preference: VC investors tend to favor startups from their own academic institutions. This inclination is not influenced by factors like geographical proximity or the propensity of prestigious institutions to produce both entrepreneurs and VC investors.
Effective Deal Identification: The preference of investors for alumni-founded startups indicates an advantage in information access rather than simple bias. Such connections lead to better deal identification, with investments in connected startups being 33% more likely to result in an IPO after funding, highlighting the significance of this informational edge.
Consequences of VC Partner Exits: The departure of a partner from a VC firm may disrupt the existing connections with startups from the same university. The authors have noted a decline in deals following such departures, with a 23% decrease in the likelihood of funding for startups connected to the departing partner’s university.
Investment Size Correlation: The investment size is typically 18% larger when a VC investor and a startup founder have attended the same university. This suggests that the connection is not merely about favoritism but indicates a readiness to invest more substantial amounts compared to deals without such connections.