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Derivative Networks: Hot Board Member, Angel, and VC Relations

April 10, 2007 on 7:31 pm | In Company Analysis, General, Investor Analysis, In the news, Network Theory, Network Training, Board Member Analysis |

Continuing from the previous post…We now use the relations found in the previous map to investigate ‘hot company’ networks in new ways. This is based on the idea that key people and investors can help point the way to new companies. The goal of a ‘derivative network’ is to take a network of interest and ‘invert’ it to see another view of its affiliations. In each of the ensuing three derivative maps, we will be exposed to new sets of people and companies that are not in this group of ‘hot companies,’ but are related to that group through these derivative networks.

First let’s look at the networks of the three key board members identified in the previous post: Reid Hoffman, David Sze, and Bill Gurley. Q: What do these board members have in common? The goal here is to identify companies not found in the previous post map - companies that are found in the same circles as the ‘hot companies’ discussed in the last post. Along with the new people we find, all of these companies are potentially interesting, so let’s see what we can dig up.

In the last post we started with a map of company nodes. In this first derivative map we will look at the network formed by the affiliations of those companies - namely, the key board members.

In the map above we see the combined network for our three key board members: Bill Gurley, David Sze, and Reid Hoffman. Some key features to note are the central position of Reid Hoffman as an investor which mirrors his importance as a board member in this network formed around the ‘hottest companies.’ Most of the companies from the previous post appear as well (as is expected). Some new names also appear - Marc Andreessen, Ron Conway, Peter Thiel, and Gil Penchina as angel investors; John Dean, Jed Smith, Keith Rabois, and Brett Bullington as board members, and PayPal as a spawning ground for all of this activity. Some of the new companies we are exposed to include: Softcoin, Marquee, Wink, Vendio Services, Six Apart, Open Table, and Tropos Networks. The next map shows the network for the key angel investors from the map in the previous post.

The second derivative (well, kind of). In the map above we’ve mapped the four key individual investors from the previous post. Just as the first map in this post shows a derivative network of the key board members, this map shows the derivative network of the key angel investors. Looking at this map we see that for our network of the ‘hottest companies’ Bill Gurley and Mike Maples are less integrated. Mike Maples isn’t seen in the board member based map above, and Bill Gurley isn’t seen in the investor based map above, but all of the other key players are present in both maps, as well as Peter Thiel, Keith Rabois, and Marc Andreessen. The other point of interest lies in the new companies introduced, especially those with multiple connections such as the Facebook-Powerset cluster between Peter Thiel and Reid Hoffman. Their common involvement in Facebook negates the interest in Friendster to a great degree, but Powerset is an interesting new inclusion. Similarly, Xoom, Revision3, and Wikia are new companies introduced on this map. The next map shows the network for the key VCs from the map in the previous post.

 

The third derivative (kind of). In the map above we see the co-investments of the four key VC firms identified in the previous post. Along with the ‘hot companies,’ and other companies of interest that we identified from the second map in this post, here we see more companies of interest due to the co-investment relations between our key VCs. It is interesting to note that none of these companies have received funding from more than two of these VCs, which perhaps would have been an indication of a higher level interest or importance in the network of ‘hot companies.’ From this point we could continue to investigate the networks of these other companies - Registered users can do so by clicking through on our maps.There is a tendency in the Valley to fixate on the hottest new thing, and the biggest payoff, but the derivatives of ‘the big ones’ can often lead to a number of extremely successful companies. In any case, the goal of this post was to illustrate alternative viewpoints using network maps (i.e., from the VC, Angel Investor, or Board Member perspective). In this case, derivative networks were used to identify hot company relations. The main premise is that it is not only what you do, but who you are associated with, that helps determine company success. This can be applied to any set of people, companies, or investors in your own area of interest.