Network and Risk in Venture Capital Investing

Does the network of venture capital firms affect the risk they are willing to take in their investment decisions? I develop a theoretical model of the ven- ture capital investing process and I empirically test its implications. The model considers a representative venture capital fund that decides whether to invest in a startup, and whether to syndicate with another fund. I find that a better connected venture capitalist is able to take more risk, be- cause she is able to improve the company performance with her contacts. Moreover, poorly connected venture capital firms are more likely to enter a syndication, especially when the co-investors are well connected. Finally, I use the Crunchbase database to empirically verify these implications.