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Emergent Properties of a New Financial Market: American Venture Capital Syndication, 1960–2005

INSEAD, Boulevard de Constance, Fontainebleau 77305, France
INSEAD, Boulevard de Constance, Fontainebleau 77305, France
Cox School of Business, Southern Methodist University, Dallas, Texas 75275
bruce.kogut{at}insead.edu
pietro.urso{at}alumni.insead.edu
gwalker{at}mail.cox.smu.edu

The recorded transactions of venture capital investments permit a direct examination of the Braudel hypothesis that regional markets evolve dynamically and interdependently in reference to a global system. This hypothesis contradicts the popular belief that regional financial development is anchored in dense clusters. Using methods of complex graphs, we analyze 159,561 transactions over nearly 45 years to demonstrate the rapid emergence of a national network of syndications. A giant component emerges early in the history of the industry, which subsumes the regional and sectoral subgraphs. The results confirm the Braudel hypothesis over the role of regional clusters, rejects preferential attachment in favor of repeated ties among trusted partners, and emphasizes the importance of dynamics and complex weighted graphs for the analysis of social and economic behavior.

Key Words: venture capital syndication; complex weighted graphs; giant components; financial market integration; network graphs
History: Received: April 5, 2005;