The Money Connection—Understanding VC Networks (HBS Working Knowledge)

How do venture capital firms spot the investment opportunities and also reduce risk? It's the power of networks, says Harvard Business School professor Toby Stuart—and understanding how they work in VC is just now starting to be understood. 

Key VC Networking Concepts

  • Networks are important in all industries, but especially so in VC where investment opportunities can be located far away from the centers of venture capital.
  • "Spanning ties" enable investors with fixed locations and industry expertise to learn of opportunities outside their geographic and industry domains, while also reducing risk.
  • Ties are more likely to form between VC firms in the context of bandwagons, such as a "hot" IPO market, that create a rush of excitement around particular types of companies.

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