The Prediction of Venture Capital Co-Investment Based on Structural Balance Theory.

Venture capital (VC) is of great importance to high-tech industry and network economy since many high-tech firms benefit from VC, especially when they are in their infancy, such as Google, PayPal, and Alibaba. Over 80 percent of the VC investments are related to at least two investors and so co-investment is an important phenomenon in the VC market. However, it is challenging to predict future co-investments due to the complexity and uncertainty of VC behavior. In this paper, we formulate the problem of co-investment prediction into a factor graph model incorporating structural balance theory. We design a large number of features from the perspective of both domain knowledge and social network, and select prominent features by group Lasso. In this paper, we introduce two new investment datasets for the study of VC. Experiment results demonstrate that the proposed model significantly (+9% in terms of accuracy) outperforms the baseline methods. It is shown that only the top 10 features selected by group Lasso (e.g., nationality, number of common neighbors, betweenness, shortest distance, investor type, number of invested fields, and Jaccard similarity of invested fields) can explain the formation of the VC network quite well (around 90 percent in terms of accuracy). In addition, we have some interesting findings. For instance, in the VC network, the co-investor of my co-investor tends to be my co-investor; VC pairs from the same country, of the same investor type, with short distance, with more common neighbors or with appropriate Jaccard similarity of invested fields are likely to co-invest; VCs of large betweenness or of a large number of invested fields have advantage in the VC network; investors of Asian countries, especially of China, are more likely to have social relations than other countries. [ABSTRACT FROM AUTHOR]