IDEAS home Printed from https://ideas.repec.org/a/eee/finlet/v64y2024ics1544612324005105.html
   My bibliography  Save this article

Social networks and start-up funding

Author

Listed:
  • Abakah, Alex Annan
  • Kim, Gunchang
  • Somé, Hyacinthe Yirlier

Abstract

This paper examines whether aggregate social networks influence start-up firms’ access to external funding. We find that start-ups in U.S. counties with higher social proximity to start-up funding (SPF) attract a larger investor base and secure more capital. The results are robust to several alternate specifications. We also show that start-ups in counties with higher SPF have high survival rates and successful exits. Our findings highlight the importance of aggregate social connections in facilitating access to early-stage funding.

Suggested Citation

  • Abakah, Alex Annan & Kim, Gunchang & Somé, Hyacinthe Yirlier, 2024. "Social networks and start-up funding," Finance Research Letters, Elsevier, vol. 64(C).
    • Handle: RePEc:eee:finlet:v:64:y:2024:i:c:s1544612324005105
    DOI: 10.1016/j.frl.2024.105480
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1544612324005105
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.frl.2024.105480?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Olav Sorenson, 2006. "Editorial Objectives: Organizations and Social Networks," Management Science, INFORMS, vol. 52(10), pages 1-1, October.
    2. Kelly Shue, 2013. "Executive Networks and Firm Policies: Evidence from the Random Assignment of MBA Peers," The Review of Financial Studies, Society for Financial Studies, vol. 26(6), pages 1401-1442.
    3. Michael Bailey & Rachel Cao & Theresa Kuchler & Johannes Stroebel & Arlene Wong, 2018. "Social Connectedness: Measurement, Determinants, and Effects," Journal of Economic Perspectives, American Economic Association, vol. 32(3), pages 259-280, Summer.
    4. Oliver Rehbein & Simon Rother, 2020. "The Role of Social Networks in Bank Lending," ECONtribute Discussion Papers Series 033, University of Bonn and University of Cologne, Germany.
    5. Benjamin Golub & Matthew O. Jackson, 2012. "Network Structure and the Speed of Learning Measuring Homophily Based on its Consequences," Annals of Economics and Statistics, GENES, issue 107-108, pages 33-48.
    6. Tian, Xuan, 2011. "The causes and consequences of venture capital stage financing," Journal of Financial Economics, Elsevier, vol. 101(1), pages 132-159, July.
    7. Oliver Rehbein & Simon Rother, 2020. "The Role of Social Networks in Bank Lending," CRC TR 224 Discussion Paper Series crctr224_2020_162v2, University of Bonn and University of Mannheim, Germany.
    8. Steven N. Kaplan & Josh Lerner, 2016. "Venture Capital Data: Opportunities and Challenges," NBER Chapters, in: Measuring Entrepreneurial Businesses: Current Knowledge and Challenges, pages 413-431, National Bureau of Economic Research, Inc.
    9. repec:bla:jfinan:v:59:y:2004:i:1:p:137-163 is not listed on IDEAS
    10. Duflo, Esther & Saez, Emmanuel, 2002. "Participation and investment decisions in a retirement plan: the influence of colleagues' choices," Journal of Public Economics, Elsevier, vol. 85(1), pages 121-148, July.
    11. Annamaria Conti & Jerry Thursby & Marie Thursby, 2013. "Patents as Signals for Startup Financing," Journal of Industrial Economics, Wiley Blackwell, vol. 61(3), pages 592-622, September.
    12. Theresa Kuchler & Yan Li & Lin Peng & Johannes Stroebel & Dexin Zhou, 2022. "Social Proximity to Capital: Implications for Investors and Firms," The Review of Financial Studies, Society for Financial Studies, vol. 35(6), pages 2743-2789.
    13. Edwards, Alexander & Todtenhaupt, Maximilian, 2020. "Capital gains taxation and funding for start-ups," Journal of Financial Economics, Elsevier, vol. 138(2), pages 549-571.
    14. Rawley Z. Heimer, 2016. "Peer Pressure: Social Interaction and the Disposition Effect," The Review of Financial Studies, Society for Financial Studies, vol. 29(11), pages 3177-3209.
    15. Timothy Conley & Silvia Gonçalves & Christian Hansen, 2018. "Inference with Dependent Data in Accounting and Finance Applications," Journal of Accounting Research, Wiley Blackwell, vol. 56(4), pages 1139-1203, September.
    16. Veronika K. Pool & Noah Stoffman & Scott E. Yonker, 2012. "No Place Like Home: Familiarity in Mutual Fund Manager Portfolio Choice," The Review of Financial Studies, Society for Financial Studies, vol. 25(8), pages 2563-2599.
    17. Shai Bernstein & Arthur Korteweg & Kevin Laws, 2017. "Attracting Early-Stage Investors: Evidence from a Randomized Field Experiment," Journal of Finance, American Finance Association, vol. 72(2), pages 509-538, April.
    18. Nguyen, Giang & Nguyen, My & Pham, Anh Viet & Pham, Man Duy (Marty), 2023. "Navigating investment decisions with social connectedness: Implications for venture capital," Journal of Banking & Finance, Elsevier, vol. 155(C).
    19. Nahata, Rajarishi, 2008. "Venture capital reputation and investment performance," Journal of Financial Economics, Elsevier, vol. 90(2), pages 127-151, November.
    20. Oliver Rehbein & Simon Rother, 2020. "Distance in Bank Lending: The Role of Social Networks," CRC TR 224 Discussion Paper Series crctr224_2020_162v1, University of Bonn and University of Mannheim, Germany.
    21. Gompers, Paul A, 1995. "Optimal Investment, Monitoring, and the Staging of Venture Capital," Journal of Finance, American Finance Association, vol. 50(5), pages 1461-1489, December.
    22. repec:bla:jfinan:v:59:y:2004:i:3:p:1259-1294 is not listed on IDEAS
    23. Agrawal, Ajay & Kapur, Devesh & McHale, John, 2008. "How do spatial and social proximity influence knowledge flows? Evidence from patent data," Journal of Urban Economics, Elsevier, vol. 64(2), pages 258-269, September.
    24. Lauren Cohen & Umit G. Gurun & Christopher Malloy, 2017. "Resident Networks and Corporate Connections: Evidence from World War II Internment Camps," Journal of Finance, American Finance Association, vol. 72(1), pages 207-248, February.
    25. repec:adr:anecst:y:2012:i:107-108:p:2 is not listed on IDEAS
    26. Paige Ouimet & Geoffrey Tate, 2020. "Learning from Coworkers: Peer Effects on Individual Investment Decisions," Journal of Finance, American Finance Association, vol. 75(1), pages 133-172, February.
    27. Oliver Rehbein & Simon Rother, 2020. "Distance in Bank Lending: The Role of Social Networks," CRC TR 224 Discussion Paper Series crctr224_2020_162, University of Bonn and University of Mannheim, Germany.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Nguyen, Giang & Nguyen, My & Pham, Anh Viet & Pham, Man Duy (Marty), 2023. "Navigating investment decisions with social connectedness: Implications for venture capital," Journal of Banking & Finance, Elsevier, vol. 155(C).
    2. Bailey, Michael & Gupta, Abhinav & Hillenbrand, Sebastian & Kuchler, Theresa & Richmond, Robert & Stroebel, Johannes, 2021. "International trade and social connectedness," Journal of International Economics, Elsevier, vol. 129(C).
    3. Barth, James R. & Hu, Qinyou & Sickles, Robin & Sun, Yanfei & Yu, Xiaoyu, 2024. "Direct and indirect impacts of natural disasters on banks: A spatial framework," Journal of Financial Stability, Elsevier, vol. 70(C).
    4. Giang Nguyen & My Nguyen & Anh Viet Pham & Man Duy Marty Pham, 2023. "Navigating investment decisions with social connectedness : Implications for venture capital," Post-Print hal-04325756, HAL.
    5. Andersen, Angela & Garel, Alexandre & Gilbert, Aaron & Tourani-Rad, Alireza, 2022. "Social capital, human capital, and board appointments," Global Finance Journal, Elsevier, vol. 54(C).
    6. Kariya, Ankitkumar & Shekhawat, Chhavi, 2024. "Distance lending & social connectedness," Journal of Financial Stability, Elsevier, vol. 72(C).
    7. Theresa Kuchler & Yan Li & Lin Peng & Johannes Stroebel & Dexin Zhou, 2022. "Social Proximity to Capital: Implications for Investors and Firms," The Review of Financial Studies, Society for Financial Studies, vol. 35(6), pages 2743-2789.
    8. Makridis, Christos A., 2022. "The social transmission of economic sentiment on consumption," European Economic Review, Elsevier, vol. 148(C).
    9. Michael Bailey & Drew Johnston & Martin Koenen & Theresa Kuchler & Dominic Russel & Johannes Stroebel, 2022. "The Social Integration of International Migrants: Evidence from the Networks of Syrians in Germany," CESifo Working Paper Series 9680, CESifo.
    10. Jia, Ning & Wang, Dan, 2017. "Skin in the game: General partner capital commitment, investment behavior and venture capital fund performance," Journal of Corporate Finance, Elsevier, vol. 47(C), pages 110-130.
    11. Xinming Du, 2023. "Symptom or Culprit? Social Media, Air Pollution, and Violence," CESifo Working Paper Series 10296, CESifo.
    12. Reint Gropp & Steven Ongena & Jörg Rocholl & Vahid Saadi, 2022. "The cleansing effect of banking crises," Economic Inquiry, Western Economic Association International, vol. 60(3), pages 1186-1213, July.
    13. Michael Bailey & Drew M. Johnston & Martin Koenen & Theresa Kuchler & Dominic Russel & Johannes Stroebel, 2020. "Social Networks Shape Beliefs and Behavior: Evidence from Social Distancing During the COVID-19 Pandemic," NBER Working Papers 28234, National Bureau of Economic Research, Inc.
    14. Georgij Alekseev & Safaa Amer & Manasa Gopal & Theresa Kuchler & J. W. Schneider & Johannes Stroebel & Nils Wernerfelt, 2023. "The Effects of COVID-19 on U.S. Small Businesses: Evidence from Owners, Managers, and Employees," Management Science, INFORMS, vol. 69(1), pages 7-24, January.
    15. Onur Bayar & Emre Kesici, 2024. "The impact of social media on venture capital financing: evidence from Twitter interactions," Review of Quantitative Finance and Accounting, Springer, vol. 62(1), pages 195-224, January.
    16. Chen, Jun & Hshieh, Shenje & Zhang, Feng, 2021. "The role of high-skilled foreign labor in startup performance: Evidence from two natural experiments," Journal of Financial Economics, Elsevier, vol. 142(1), pages 430-452.
    17. Santiago Carbo-Valverde & Héctor Pérez Saiz & Hongyu Xiao, 2023. "Geographical and Cultural Proximity in Retail Banking," Staff Working Papers 23-2, Bank of Canada.
    18. Ströbel, Johannes & Bailey, Michael & Johnston, Drew & Koenen, Martin & Kuchler, Theresa & Russel, Dominic, 2020. "Social Distancing During a Pandemic - The Role of Friends," CEPR Discussion Papers 15593, C.E.P.R. Discussion Papers.
    19. Hu, Zhongchen, 2022. "Social interactions and households’ flood insurance decisions," Journal of Financial Economics, Elsevier, vol. 144(2), pages 414-432.
    20. Colombo, Massimo G. & Guerini, Massimiliano & Hoisl, Karin & Zeiner, Nico M., 2023. "The dark side of signals: Patents protecting radical inventions and venture capital investments," Research Policy, Elsevier, vol. 52(5).

    More about this item

    Keywords

    Start-up; Social connection; Start-up funding; Funding proximity;
    All these keywords.

    JEL classification:

    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:finlet:v:64:y:2024:i:c:s1544612324005105. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/frl .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.