Stories of Technology, Innovation, & Entrepreneurship in the Southeast

Rosie Bradbury is a Senior Reporter covering start-ups and venture capital for PitchBook News. In a recent article for the publication, the New York City-based journalist wrote, “The saying that ‘VC (venture capital) is a relationship game’ now has data to prove it.”

According to PitchBook’s latest Quantitative Perspectives report, companies with well-connected lead investors have failure rates at least 10 percentage points lower than those of peers backed by peripheral investors.

PitchBook categorized “well-connected” VCs as those in the 90^th percentile or above based on its proprietary version of the PageRank algorithm, which measures investor influence based on their connections in the ecosystem. Lead investors were emphasized as they typically play a more active role in the development and success of the company.

The power of networking is especially pronounced at later stages: for Series D investments and beyond, well-connected investors had a 4 percent failure rate among their investments—peripheral investors saw upwards of 15 percent.

Companies with well-connected lead investors also log better annualized returns: an average of 25.6 percent for companies at Series D and beyond, compared to 3.1 percent for companies backed by peripheral investors.

For founders, much of investors’ value lie in their networks: connections to a founder peer network, potential customers, and even investors that can lead subsequent rounds.

The benefits of connectedness also flow in the other direction. Investors with stronger networks tend to access more deal flow and are more likely to get early tips about the buzziest start-ups.

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