Can you always reap what you sow? Network and functional data analysis of VC investments in health-tech companies

TL;DR

This paper analyzes venture capital investments in health-tech firms using network analysis, revealing that a company's success correlates with its centrality in the investment network and identifying distinct success regimes.

Contribution

It introduces a novel network-based framework to define and measure success in VC investments, linking success to network centrality and community structure.

Findings

Success correlates with network centrality of firms and investors.

Firms can be clustered into two success regimes based on funding trajectories.

Network features reliably predict different success outcomes.

Abstract

"Success" of firms in venture capital markets is hard to define, and its determinants are still poorly understood. We build a bipartite network of investors and firms in the healthcare sector, describing its structure and its communities. Then, we characterize "success" introducing progressively more refined definitions, and we find a positive association between such definitions and the centrality of a company. In particular, we are able to cluster funding trajectories of firms into two groups capturing different "success" regimes and to link the probability of belonging to one or the other to their network features (in particular their centrality and the one of their investors). We further investigate this positive association by introducing scalar as well as functional "success" outcomes, confirming our findings and their robustness.