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Open Access

Who Are the Elites in the Venture Capital Industry?—Investigation of Elite-Club Boundary in a Co-Investment Network

Department of Sociology, Tsinghua University, Beijing 100084, China
School of Information, Central University of Finance and Economics, Beijing 102206, China
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Abstract

Existing research suggests that elite clubs exist in venture capital markets, but a standard for determining their size and composition is lacking. This paper addresses this challenge by using the weighted k-means sorting algorithm to construct a research framework for elite clubs. Validating the framework with investment events data from China’s venture capital market (2001–2018), intriguing findings emerge. The ranking of Venture Capitalists (VCs) follows a power-law distribution, providing evidence for elite clubs’ existence. The analysis identifies a turning point in the score curve, serving as a valuable indicator for club boundaries. Elite clubs demonstrate relatively high stability, maintaining advantages and elite status in future competitions. Empirical validation confirms the proposed framework’s superior stability compared to existing methods. Importantly, elite club members outperform non-elites significantly. This paper effectively identifies elite clubs in the Chinese venture capital market, helping other VCs recognize potential partners, access high-quality information, and enhance investment performance.

Keywords

venture capitalco-investment networkelite clubboundaryranking

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Journal of Social Computing
Volume 5 Issue 2,
June 2024
Pages 145-164
DOI: 10.23919/JSC.2024.0013
Cite this article:
Zhang Y, Yang H. Who Are the Elites in the Venture Capital Industry?—Investigation of Elite-Club Boundary in a Co-Investment Network. Journal of Social Computing, 2024, 5(2): 145-164. https://doi.org/10.23919/JSC.2024.0013
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Single indicators.

IndicatorMeasureReference
Centrality indicatorDegree centralityNumber of edges directly connected to the nodeFu et al.[52]; Gao et al.[53]
Closeness centralityHow close a node is to other nodesSabidussi[29]; Fu et al.[52]; Gao et al.[53]
Betweenness centralityNumber of shortest paths through a nodeFreeman[54]
Eigenvector centralityImportance of neighbor nodes connected to this nodeBonacich[55]
k-coreSubgraph that conforms to the specified k kernel degreeKitsak et al.[30]; Perc[57]
PageRankImportance of a roughly estimated website by calculating the number and quality of web linksRichardson and Domingos[56]; Page et al.[58]
TrustRankA ranking algorithm based on link relationGyöngyi et al.[59]
UW-PageRankWhen extracting keywords, disambiguation is eliminated and the most important meaning is selected (improvement of PageRank)Wang et al.[60]
LeaderRankWhen ranking, a background node is added for bidirectional connection with all nodes (improvement of PageRank)Lyu et al.[61]; Li et al.[62]; Bian and Deng[63]
CiteRankA multi-dimensional hybrid ranking method (improvement of PageRank)Jomsri et al.[64]
IPRAA method based on resource allocation (IPRA) to identify influential nodes (improvement of PageRank)Zhong and Lyu[65]
HillTopA method for ranking search engine results by the number and quality of web pages linkedBharat and Mihaila[66]
Frequency domain indicatorScaleNumber of firms a VC has invested inBygrave[67]; Cable and Shane[68]; Walske et al.[69]
Number of industries a VC has invested inYang et al.[70]
Number of rounds a VC has invested inYang et al.[70]
Number of countries a VC has invested inYang et al.[70]
Number of provinces a VC has invested inYang et al.[70]
Number of seed stages a VC has invested inYang et al.[70]
Number of initial stages a VC has invested inYang et al.[70]
Number of expansion stages a VC has invested inYang et al.[70]
ExperienceInvestment experience of VCCumming and Dai[71]

Annual growth rate of VCs and elites.

YearnNN1N2Proportion (N1/N) (%)Proportion (N1/n) (%)Increase rate (N) (%)Increase rate (N1) (%)
200315372106213.96.5−−
2004196104139112.56.644.430.0
20052391301511511.56.325.015.4
20063071872016710.76.543.833.3
2007410250242269.65.933.720.0
2008517326272998.35.230.412.5
2009645407333748.15.124.822.2
2010841539414987.64.932.424.2
20111091713526617.34.832.325.0
20121258826597677.14.715.813.5
20131377881618206.94.46.73.4
201416181064729926.84.420.818.0
2015203413388712516.54.325.820.8
20162583171610616106.24.128.321.8
20173057201612318936.14.017.516.0
20183715249314123525.73.823.714.6

Descriptive statistics of main variables.

VariableMeansdMedianMaxMinSkewKurtosis
IPO rate0.090.260.001.000.002.997.51
MA rate0.030.140.001.000.006.1138.05
Success rate0.110.290.001.000.002.494.71
DC10.8421.344.002960.004.6031.25
CC0.000.000.000.000.006.1446.89
KC5.276.064.0028.000.001.501.92
EC0.040.130.001.000.004.9427.35
Hub_score0.040.130.001.000.004.9427.35
PageRank0.000.000.000.000.004.8631.68
Score0.070.130.021.040.003.7717.95

Correlation coefficients.

VariableIPO_rateMA_rateSuccess_rateDegree_allClonessk_coreEigen_centralityHub_scorePageRankScoreTotal_firmTotal_industryTotal_roundsTotal_nationowngvcif_capital
IPO_rate1.00−−−−−−−−−−−−−−−−
MA_rate−0.051.00−−−−−−−−−−−−−−−
Success_rate0.870.441.00−−−−−−−−−−−−−−
Degree_all−0.01−0.01−0.021.00−−−−−−−−−−−−−
Cloness0.080.080.110.051.00−−−−−−−−−−−−
k_core0.01−0.010.000.810.111.00−−−−−−−−−−−
Eigen_centrality0.030.020.030.690.290.581.00−−−−−−−−−−
Hub_score0.030.020.030.690.290.581.001.00−−−−−−−−−
PageRank0.090.030.100.610.570.470.760.761.00−−−−−−−−
Score0.050.020.060.810.420.690.840.840.921.00−−−−−−−
Total_firm−0.04−0.01−0.040.89−0.010.610.580.580.490.651.00−−−−−−
Total_industry−0.070.01−0.060.670.070.690.470.470.430.580.631.00−−−−−
Total_rounds−0.070.00−0.060.680.050.750.480.480.390.560.610.861.00−−−−
Total_nation−0.070.00−0.060.540.080.610.360.360.310.450.450.730.781.00−−−
own−0.04−0.02−0.05−0.01−0.02−0.09−0.07−0.070.02−0.020.050.070.000.001.00−−
gvc−0.04−0.02−0.05−0.01−0.02−0.09−0.07−0.070.02−0.020.050.070.010.001.001.00−
if_capital0.01−0.03−0.01−0.25−0.19−0.35−0.31−0.31−0.20−0.30−0.15−0.19−0.26−0.280.320.321.00

Empirical results.

VariableIPO rateMA rateSuccess rate
No controlControlNo controlControlNo controlControl
Note: • p<0.1; * p<0.05; ** p<0.01; *** p<0.00. Control: TNI, NoI, NoPx, NoCoun, gvc, own, and if_capital.
DC−0.0032(0.0038)0.0416***(0.0093)−0.0017(0.0020)−0.003(0.005)−0.0049(0.0042)0.0385***(0.0104)
CC0.0206***(0.0038)0.0229***(0.0039)0.0114***(0.0020)0.0110***(0.0021)0.0321***(0.0042)0.0339***(0.0043)
KC0.0018(0.0038)0.0370***(0.0063)−0.0018(0.0020)−0.005(0.003)0.0000*(0.0043)0.0314***(0.0070)
EC0.0068•(0.0038)0.0223***(0.0050)0.0025(0.0020)0.0044(0.0027)0.0093*(0.0042)0.0267***(0.005)
Hub_score0.0068•(0.0038)0.0223***(0.0050)0.0025(0.0020)0.0044(0.0027)0.0093*(0.0042)0.0267***(0.0055)
PageRank0.0240***(0.0038)0.0425***(0.0045)0.0048*(0.0020)0.0069**(0.0024)0.0289***(0.0042)0.0495***(0.0050)
Score0.0131***(0.0038)0.0446***(0.0054)0.0034•(0.0020)0.0073*(0.0029)0.0166***(0.0042)0.0520***(0.0060)

Empirical results.

VariableIPO rateMA rateSuccess rate
Note: ** p<0.01. Control: TNI, NoI, NoPx, NoCoun, gvc, own, and if_capital.
Elite−0.0056(0.0127)0.0465**(0.0176)0.0028(0.0069)0.0056(0.0096)−0.0029(0.0142)0.0522**(0.0197)
ControlNoYesNoYesNoYes