The evolution of k-shell in syndication networks reveals financial performance of venture capital institutions

TL;DR

This paper uses temporal k-shell decomposition of syndication networks to evaluate the influence and financial performance of venture capital institutions in China, revealing distinct groups with different behaviors.

Contribution

It introduces a novel method employing k-shell evolution analysis to assess VC influence and performance, surpassing traditional static network indicators.

Findings

K-shell is a better indicator than other centrality measures.

VC institutions cluster into five groups with distinct performance.

Temporal analysis reveals evolution patterns linked to financial success.

Abstract

Venture capital (VC) is a relatively newly emergent industry that is still subject to large uncertainties in China. Therefore, building a robust social network with other VC institutions is a good way to share information, various resources, and benefit from skill and knowledge complementarity to against risks. Strong evidences indicate that better networked VC institutions are of a better financial performance, however, most of previous works overlook the evolution of VC institutions and only focus on some simple topology indicators of the static syndication network, which also neglects higher-order network structure and cannot give a comprehensive evaluation. In this paper, based on VC investment records in the Chinese market, we construct temporal syndication networks between VC institutions year by year. As k-shell decomposition considers higher-order connection patterns, we employ k-shell as an evaluation of the influence of VC institutions in syndication networks. By clustering time series of k-shell values, the VC institutions in China fall into five groups that are quite different from each other on financial performances and investment behaviors. This, in turn, proves the power of our method that only based on proper sequential network properties, we can reveal their financial investment performance. Compared to other network centrality measurements, k-shell is a better indicator that is indicated by a smaller intra-group distance and a larger inter-group distance.