Startups with larger Social Networks receive more Venture Capital funding

A report conducted by Ryerson University has found that tech startups with larger social networks receive more venture capital funding.

Released today, the preliminary report, which is part of a larger innovation research project, finds Ontario technology startups with larger social networks are associated with more startsup funding, at an average rate of $1.7 million more per relationship.  Findings of the report also revealed that nearly half of network connections in the best funded companies come from San Francisco, Boston or New York.

The Ontario Cross-Border Technology Innovation Ecosystem (OCTIE) Report is the first-ever analysis of social networks of Ontario venture capital funded technology startup companies. More than 400 individuals involved in the building of 50 Ontario technology startups since 2006 with total funding of $1 Billion were identified in the study.

“New social network analysis tools have the potential to illuminate the role of strong and weak ties among financiers, startups, universities, incubators and other players in the Ontario innovation eco-system,” said lead researcher Saif Al-Naib, a recent Ryerson MBA graduate. “We know a lot about how the strong ties of clusters help sharing. This study gives us insight into the equally important role of weak, international market and capital connections that are critical to creating a globally competitive technology leader.”

In addition to the correlation between extensive social networks and larger funding, a surprising trend emerged from the research — the
majority of people involved in Ontario technology startups are clustered, but this leads to redundant social networks and less funding.

Other report findings include:

  • Toronto start-ups have the most social networks and are the most funded compared to Ottawa and Kitchener-Waterloo region startups.
  • A few individuals are highly active in the majority of Ontario startup funding. This causes bottlenecks. Those individuals have tremendous pressure on them due to their position on the critical path for the rest of the community.
  • Investors tend to favour investment in new or unknown entrepreneurs rather than experienced entrepreneurs.

The Ryerson University initial findings will launch a broader and more in-depth study called Ontario Cross-border Technology Innovation
Ecosystem (OCTIE) that will involve more organizations and investigate in greater detail the strengths of relationships, methods of building
relationships such as social media and face-to-face as well as analyzing social networks by region.  So far, more than 50 organizations have already signed up for the next phase of the project including Cisco, OMERS, Communitech, Deloitte and Coral CEA. Those interested in participating can find more information on the Ryerson research and sign up for the OCTIE study here.