Ranking Angels, Micro VCs, and Corporate VCs using a Google PageRank like model that assesses network strength and quality.

PageRank was the first algorithm used by Google to determine website quality and search engine results. If you were to apply a similar algorithm to investors, how would they stack up? Below, we’ve done just that to help measure the quality of:

But first, for those unfamiliar with PageRank, here is how it works:

PageRank works by counting the number and quality of links to a page to determine a rough estimate of how important the website is. The underlying assumption is that more important websites are likely to receive more links from other websites.

To simplify, if your website has lots of links, Google thinks it may be more credible.  If some of those links come from high quality sites like harvard.edu or whitehouse.gov, that increases the authority or credibility of the site as well.  Taking into account the breadth and quality of links to a site helps PageRank determine the quality of a website and hence where it should be in search engine results. The web is a large interconnected network of connections (links) based on PageRank.

The investment ecosystem is not dissimilar. Syndication of deals in technology allows us to use a similar algorithm to assess the quality of any investor in the network.  Specifically, we can use a PageRank style algorithm to assess the quality of an investor based on the links it has to others in the investment ecosystem.

But why do this?

There are two reasons to do this:

  1. Network quality is a driver of fund returns. Academics have shown that better networked venture investors perform better. The measure, often referred to as network centrality, is something we can quantify by building a Google PageRank for investors.
  2. An objective measure of network strength. Every investor says they have a great network. Like “proprietary dealflow”, it is a claim that sounds great, but unfortunately, has largely been unverifiable. Except it now is.

How does it work?

The network centrality algorithm looks at (1) the quantity (breadth) of connections an investor has with other investors in the ecosystem and (2) the quality and depth of those links.  Having lots of connections with investors is a good thing, as is doing lots of deals with Accel Partners or Union Square Ventures (the equivalents of having a link from harvard.edu to use the earlier web analogy). If you invest in companies that top-tier funds like Benchmark or Sequoia Capital eventually follow-on into, that gives a boost to your network strength as well.

As an example, using our network mapping tool called the Business Social Graph, we can look at Felicis Ventures. Felicis is the node at the center of the map and the lines or edges connecting it to other investors show it has many connections to top tier funds including Sequoia Capital, Founders Fund, SV Angel and First Round Capital (the interactive Business Social Graph can be zoomed into on CB Insights which makes reading of labels easier)

 Felicissocialgraph

Another way to visualize network centrality is with our Investment Syndicate dashboards from Investor Analytics. Using that capability, we can look at another fund manager, Floodgate, and we see the quality of the follow-on investors is high and includes the likes of firms such as First Round Capital, Insight Venture Partners, Andreessen Horowitz and Kleiner Perkins.

Floodgatev2

Now, let’s look at Google PageRank as applied to Angels, Micro-VCs, and Corporate VCs.

The data below:

Angel Investors – Y Combinator’s Influence is Clear

Alexis Ohanian, founder of social news site Reddit, had the highest “PageRank” or network centrality score among all angels, with New Enterprise Associates, Google Ventures, and First Round Capital following-on to his investments most frequently.

Max Levchin, a co-founder of PayPal and now behind well-funded payments startup Affirm, is the second most-networked angel investor. Levchin’s notoriety as a member of the “PayPal Mafia” lends itself to a strong network. Highland Capital Partners, SV Angel, and Founders Fund follow-on to his investments most frequently.

Of note, 6 of the top 20 angels by network centrality had affiliations with famed accelerator Y Combinator. These angels include Y Combinator’s current President, Sam Altman, current/past Partners Garry Tan, Geoff Ralston, Paul Buchheit, and Harj Taggar, and Ambassador Alexis Ohanian.

Of the follow-on investors, First Round Capital was the most-frequent, indicating the firm’s strong ties to prominent angel investors. Andreessen Horowitz and SV Angel rounded out the top 3. The table below highlights the top 20 angels by network centrality and their top 3 VC co-investors based on total number of companies they’ve co-invested in.

Network-Centrality-Top-20-Final-v2

Micro VCs – SV Angel is connected and a connector

SV Angel ranked first for all Micro VC firms, with legendary investor Ron Conway’s fund scoring highest in network centrality. New York-based Lerer Hippeau Ventures ranked second in network centrality. Dave McClure-led 500 Startups, TechCrunch founder Michael Arrington’s CrunchFund, and Founder Collective round out the top 5 micro-VCs as measured by investor PageRank.

It should be noted that all of the firms listed below are ranked in the top decile of micro VC firms and so the differences between their network centrality scores are relatively small. The table below highlights the top 14 micro VCs (top decile) by network centrality and their top 3 VC co-investors by total companies.

networkmicro2

Corporate VCs – Google Ventures’ quick ascent

Google, the home to the PageRank algorithm, saw its corporate venture unit, Google Ventures, rank first among all corporate venture capital groups for network strength. Five other CVCs ranked in the top decile including Qualcomm Ventures, Comcast Ventures, Salesforce and Time Warner Investments.

Google Ventures’ investment syndicate partners frequently include Kleiner Perkins Caufield & Byers and Andreessen Horowitz. Andreessen Horowitz has syndicated the most deals with GV at the early-stage while Kleiner and GV have teamed up on financings across the maturity spectrum from AngelList to Shape Security to Secret. The table below highlights the top 10 most networked corporate venture arms their top 3 co-investors by total deals.networkedcvcs

For more insights into Investor Syndication, the following research briefs may be of interest:

To access and analyze investment syndicates from Investor Analytics or the Business Social Graph, create an account below.

  • http://www.snapgoods.com Ron J

    This is awesome. I think the one challenge is that you’ve underscored what we call high “connection concentration” within venture capital that makes breaking in challenging. Our team at Simplist is working on identifying the “pathways in” for people who may not have proximity to some of the key nodes within these graphs. And where there isn’t a clear path, making it simple and easy to turn everyone in a network into a connector (by making it easier for people to have perspective on their entire network of connections and contacts). I’d love to see more on the Founder-Investor-Co-investment nodes and edges piece of this. (i.e. investment to successful exit to angel life cycle). It would be interesting to see the difference in investor networks between people who have always been (and are primarily still) professional investors vs. those folks who built stuff first and then became investors.