Formation of Chinese venture capital syndication network
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Economics and Complex Networks
Formation of Chinese venture capital syndication network Makoto Nirei1 · Toshiaki Shoji2 · Fei Yu3 Received: 30 May 2020 / Revised: 5 August 2020 / Accepted: 17 August 2020 © The Author(s) 2020
Abstract Using a dataset that recorded a large number of investment transactions in China from 1991 to 2018, we examine the statistical properties of the Chinese venture capital (VC) syndication network. Our main findings are as follows. First, the number of investment transactions sharply increased after 2014. Second, more than half of the VC firms are located in Beijing, Shanghai, and Shenzhen. Third, the degree distribution becomes roughly straight on a log–log plot. Fourth, the hypothesis that the degree distribution follows a power-law distribution is not rejected for 2015 and 2016. Fifth, better connected VC firms increase their connectivity faster, which suggests the existence of preferential attachment. Keywords Venture capital syndication · Chinese venture capital market · Network graphs · Scale-free networks · Preferential attachment
1 Introduction Venture capital (VC) firms are a class of financial intermediaries that invest their managing funds in start-up companies and thus play an important role in fostering emerging industries in both developed and developing countries. In China, which The authors would like to thank participants of NetSci-X 2020 at Waseda University for their helpful comments. Shoji gratefully acknowledges financial support from JSPS (Grant Number 19K23201). This paper is an outgrowth of Yu’s master’s thesis submitted to University of Tokyo (Yu, 2018). * Toshiaki Shoji [email protected] Makoto Nirei [email protected]‑tokyo.ac.jp Fei Yu [email protected] 1
Graduate School of Economics, University of Tokyo, Tokyo, Japan
2
Faculty of Economics, Seikei University, Musashino, Japan
3
China International Capital Corporation, Beijing, China
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The Japanese Economic Review
is considered a developing country, the VC market started around 1991 with the establishment of the Shanghai Stock Exchange and the Shenzhen Stock Exchange. Raising capital in these financial markets was not easy for small and medium enterprises due to the strict listing requirements; however, VC firms provided a way for these enterprises to raise capital. The number of investment transactions made by VC firms was less than 100 per year until 1998, while it rapidly increased after 1999 and reached a peak of 20,000 in 2015. A striking feature of VC firms engaged in investment transactions is that they form syndication, that is, multiple VC firms invest in a particular start-up company at the same time. The main reason behind this behavior is to share risks associated with investing in a relatively small company and to mitigate information asymmetry between investors and investees. This suggests a fundamental question that should be addressed in corporate finance literature: how do these VC firms find their partners and what kind of statistical properties does the
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