Matching in Entrepreneurial Finance Networks

Abstract

We empirically explore the importance of networks in the match formation of startups and investors. Using a massive network of connections from the entrepreneurial finance setting in California, we estimate a matching model introducing network distance as a key determinant of the value of a prospective match. We find that distance drives matching value and moderates preferences for experience and education. While we corroborate that there is significant sorting along these preferences in realized matches, our results indicate that network distance can potentially outweigh their impact, emphasizing the role of networks in alleviating matching frictions in these markets.

Keywords: Entrepreneurial Finance, Networks

JEL Classification: G24, L26, L14