Degrees of Separation as a Measure of Venture Capitalist Board Member Connectedness
San Francisco State University
Members of the board of directors of larger corporations may serve on more than one board. Their job is to provide strategic guidance to the firms they direct. To provide that guidance and to protect their investment, venture capital firms regularly place at least one of their staff on the board of directors of firms in which they have invested significant amounts of money. One way that board members could provide better guidance is by being exposed to other firms via sitting on more than one board. In such a capacity, a board member who sits on multiple boards will be in contact with other board members, who also possibly sit on multiple boards.
This research project proposes to use mathematical graph theory to model the non-linear system of board members in one industry sector. The first step in the research project was to construct a node-and-edge graph in which nodes represented board members, and edges represented connections to others who sat on the same board. The second step in the research project was use the graph theory concept of DOS (“degrees of separation”) to measure which board members are the “most connected”. The third and final step in the research project was to compare the ranking of “most connected” board members to previous financial rankings of VC (venture capitalist) board members.
First, board member data was collected for all firms that went public in any technology sector on the NASDAQ since January of 1998. Second, a node-and-edge graph was constructed that indicated which board members were connected to other board members. Third, DOS values were calculated for all board members. Fourth, the ranking of “most connected” VC board members was compared to previous rankings of VC board members.
Presented at the 32nd
Annual Meeting of the Western Regional Decision Sciences Institute,