• YAEL V. HOCHBERG,
• ALEXANDER LJUNGQVIST and
• YANG LU*
  

Article first published online: 7 MAY 2010

DOI: 10.1111/j.1540-6261.2010.01554.x

The Journal of Finance[size=1em]Volume 65, Issue 3,pages 829–859,June 2010ABSTRACTWe examine whether strong networks among incumbent venture capitalists (VCs) in local markets help restrict entry by outside VCs, thus improving incumbents' bargaining power over entrepreneurs. More densely networked markets experience less entry, with a one-standard deviation increase in network ties among incumbents reducing entry by approximately one-third. Entrants with established ties to target-market incumbents appear able to overcome this barrier to entry; in turn, incumbents react strategically to an increased threat of entry by freezing out any incumbents who facilitate entry into their market. Incumbents appear to benefit from reduced entry by paying lower prices for their deals.