Venture Capital Networks in Southeast Asia: Network Characteristics and Cohesive Subgroups

Abstract

Venture capital firms (VC) have encountered with uncertainty and risk of asymmetric information due to an investment in early-to-growth stage start-ups with technology-based and high growing potential. Venture capital syndication network helps reduce a broad gap of information asymmetry in a venture capital investment. Moreover, network connections are found to be the success factor for venture capitalists under a lack of fully-developed institutional environment in emerging market. Venture capital industry in Southeast Asia is nascent yet in demanding and fast growing. Despite a decline in the number of venture deals in the US, the deals keep surging in Southeast Asia (SEA), one of the most significant and dynamic propellers of the world economy. To develop the entrepreneurial ecosystem in SEA, it is interesting to examine how VC firms are connected to one another. Even though several literatures found some distinctive network characteristics amidst the US, European and Chinese venture capital market, the Southeast Asian has left unattended. In this paper, we initiate the network of venture capital firms among Southeast Asian nations and explore its relationship through social network analysis. The purposes of this study are to investigate the topological and statistical properties of VC network consisting of small-world behavior, power law distribution, centrality measure such as degree, closeness, and betweenness. In addition, we diversify different levels of connection into subnetwork and examine the influential groups of VCs in Southeast Asia. We initiate the empirical study on the characteristics of VC network across different countries in Southeast Asia using the unique hand-collected dataset of syndicated deals. Social network analysis has initially and preliminarily been applied to the VC network in this region. This paper contributes to VC network literature in providing a unique network structure and network metrics of venture capital in SEA. In managerial contribution, this study provides more structural VC cooperation towards the government and cooperates, who can facilitate more open innovation practices to create a better open environment and innovation ecosystem among accelerators, investors, and startup companies (including SMEs). The results also confirm previous evidence of significance on networks in emerging market that there is a presence of a strong venture capital network in this region, even if the institution and regulation are claimed to fall behind that in the developed region. This research introduces the fact that the venture capital network in Southeast Asia has small-world pattern and Singapore acts as a hub of venture capital market in the region. Topranking VC firms have been listed by network centrality across nations. Multi-company syndication is prevailing in Southeast Asia.