An Empirical Study On The Dynamic Evolution Of Venture Capital Network In China And Its Impact On Investment Performance

Venture capital in China showed a momentum of rapid development in the case of bothgood economic and good policies over the past decade. Chinese-funded venture capital hasrapidly grown even in a multiple way in recent years. The18th National Congress report ofthe Communist Party of China pointed out that the scientific and technological innovationcapability of China was not strong, and it definitely proposed that it was essential toaccelerate the construction of national innovation system and promote the efficientallocation of innovation resources in order to implement the innovation-driven developmentstrategy. Foreign scholars almost invariably proved that a quality venture-capital network isconducive to the efficient allocation of regional innovation resources and the developmentof regional innovation economy at the same time. Then, what about the quality ofventure-capital network of China? However, there is very little research literature referringto Chinese venture-capital network. This article investigated the dynamic evolution route ofthe venture capital network of China from the perspective of social network structure basedon the social network theory and venture-capital theory and analyzed its problems. Then, theperformance effects of the venture capital network and the mediation effects of networklocation were further analyzed. Finally, a proposal to build the quality venture-capitalnetworks was put forward.The venture-capital network theory is based on the forefront study developed from thetheories of social network and venture capital. This study used all venture capital events ofinvesting in Chinese venture enterprises to build the venture capital network for the first timebased on the theoretical overview and background analysis and made a comprehensivenormative empirical research on the dynamic evolution of the venture capital network inChina. Comparative analyses were made from the three levels: time, area and the venturecapital institutions with different nature. The dynamic evolution routes of the venture capitalnetwork in China were observed, and their characteristics were summarized. The studyfound that there are very big differences in positions of the venture capital institutions withdifferent ownership properties. Chinese-funded venture-capital institutions display negativefeelings and are in weak positions. Foreign capital has been actively occupying the core ofthe network. Joint ventures are good at learning, so their network status is becomingstronger and stronger. However, instead, the network quality of Chinese venture capital isaffected for the neglect on a rapid increase in Chinese-funded venture capital in network construction. Thereupon, this study sequentially analyzed the performance effects of theventure capital network as well as the relationships among the three, the nature of ownership,network location and investment performance, from the level of venture capital institutions,then, further tested the mediation effects of network location. This empirical researchindicates that venture capital institutions with different ownership properties can obtain ahigher investment performance through intermediary: dominant network status. This is themotivation to drive venture capital institutions to build their own dominant networklocations.It’s unwise to use the sampling method when the social network is studied (Yuan Fang,1997)[56]. This study first constructed the network diagram of17-year venture capital inChina with study samples that were all venture capital institutions investing in ventureenterprises within Chinese territory before2012. Then, their various attribute-index (thenature of ownership, headquarters, Founded Time, venture capital of companies, financialbackground, government background, etc.) laws were observed by putting them into thenetwork diagram to find out the attribute index with strongest regularity, the nature ofownership of venture capital institutions, in network evolution process. Subsequently, theevolution rules of the network over time were analyzed by combining the nature of ownershipand network attribute indexes, and their values were compared with the index values ofventure capital network in the Silicon Valley. The study shows the following: Firstly, the scaleof the venture capital network in China is increasing year by year, but there appears a fallingtendency in network quality. Secondly, there are obvious differences in the positions ofventure capital institutions with different ownership properties in the network. Thirdly,Chinese-funded venture-capital institutions display negative feelings and are in weakpositions; foreign capital has been actively occupying the core; joint ventures are good atlearning, so their network status is becoming stronger and stronger in the cooperative networkof venture capital.Then, the multiple regression models of conversion variables were built from the level ofthe overall dynamic evolution of network in this study. An exploratory analysis was made onthe influence of the change in the number of venture capital institutions with differentownership properties on the attribute indexes of the venture capital network in China, and theGranger causality test was conducted. The research results show that: the change in thenumber of venture capital institutions with different ownership properties is of a significantimpact on the attribute indexes of the venture capital network and is its Granger cause. Theincrease in the number of Chinese-funded venture capital can significantly reduce the overall cooperation level of network and its mediating capability. The increase in the number offoreign-capital venture capital can significantly improve the overall cooperation level ofnetwork. The increase in the number of joint-venture venture capital can significantly improvethe mediating capability of network.Again then, why does foreign-capital venture capital attach so much importance to theconstruction of its own network status? The panel data model with unbalanced random effectswas built in terms of the effect of network status on investment performance from the level ofmicroscopic venture-capital institutions in this study to do the empirical research. The studyconclusions show that the good network status of venture capital institutions can significantlyimprove investment performance. The closer the cooperative relations among capitalinstitutions are in the network, the higher the investment performance is. The stronger themediating capability of venture capital institution and its ability to control others are, thehigher the investment performance is. The greater the influence of venture capital institutionis in the network, the higher the investment performance is. The index representing theinfluence of venture capital in the entire network among them--closeness centrality is of alargest impact on the economy of investment performance, followed by the cooperative abilityof venture capital (degree centrality) and popularity (indegree).Next, this study did a deep analysis on the relationships among the nature of ownership,network position and investment performance by building another unbalanced model of paneldata. It is found that the network location is the intermediary variable, that is, the ownershipproperty affects investment performance through the network position. Foreign capitalenlarges its own advantages, makes up disadvantages as outsiders through the dominantnetwork position, and thereby, obtains higher investment performance than local venturecapital. However, the investment performance of Chinese-funded venture capital is lowbecause it ignores to build the cooperative network relationships and does not make good useof local advantages.Finally, this research put forward a proposal to build a high-quality venture-capitalnetwork mainly from the point of view of the construction of cooperative network relations.It is suggested that the Government and relevant departments should focus on setting up thecooperation and exchange platform for venture capital institutions, establish the wholesomecredit system of venture capital, encourage scholars to strengthen the theoretical study onChinese venture capital and timely carry out the training on investment expertise. Thestrategy of "willing" was put forward so that Chinese-funded venture-capital institutionsimprove their own network status, and an empirical test on the feasibility of this strategy was conducted.