How alumni networks stimulate new businesses

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Creating alpha in finance is all about patented access and superior interpretation of data. From VCs who hear about the next hot deal and get in on it before anyone else, to hedge fund managers who trade on insider knowledge. The spectrum is broad, but what all asset classes have in common is that professionals rely heavily on their networks.

I wrote about the basics of knowledge graphs and What Founder and VC Social Network Analysis Tells Us in 2022 and since then, many of you have shared with me innovative applications based on Twitter and LinkedIn data.

Recently Johan Torsell (one of the master students I supervised at Earlybird in the past) launched his project Venture Mafia and I thought it would be valuable for our community to learn more about it.

Thank you Johan for sharing the background story and similarities between successful alumni networks in the guest post below!

The PayPal Mafia is famous for getting in early and investing in successful startups like Tesla, Uber, and Airbnb. This group has shown that power of alumni networks by contributing to 575 startups, collectively raise more than $200 billionMany other successful startups, such as PayPal, have become important founder factories that shape the startup ecosystem.

To explore these networks, I analyzed data from over 1,000 startups and created a Venture MafiaThis web app showcases the most influential alumni networks and the startups they have supported as investors, executives, advisors and board members.

The PayPal Mafia of 28 former PayPal founders and executives have been involved in 575 companies as investors, directors, advisors or board members. Collectively, these companies have raised over $200 billion, resulting in 188 acquisitions and 44 IPOs, with exits totaling over $430 billion. Some of the most notable companies they have backed include Uber, Tesla, Airbnb, OpenAI and Meta.

These alumni include: Peter Thiel (Co-founder and CEO) is the most active investor, with 91 investments in companies like Stripe and Block.one. Max Levchin (Co-founder and CTO) follows with 77 investments, and Reid Hoffman (Executive VP) with 66.

After PayPal, Thiel has founded nine other companies, including Founders Fund and Palantir Technologies. Roelof Botha (CFO) holds the most directorships with 23, largely due to his role at Sequoia.

After eBay acquired PayPal, 6 PayPal Mafia members joined eBay as executives. Many others have continued to work together in different companies, such as Yelp and Clarium Capital, highlighting the strong connection within the founding team.

The 79 founders and early executives of PayPal, Skype, eBay and LinkedIn have been involved in more than 1,000 companies. “Factories of the Founders” have been crucial to generational innovation and have shaped the tech industry.

These alumni networks highlight the power law in the startup and VC ecosystem. For founders and entrepreneurs, a single breakthrough can pave the way to launching more successful companies that have a lasting impact. For VCs, investing early in a startup that becomes a “founder factory” offers the opportunity to support new ventures started by the original team and gain access to a high-quality deal stream by investing alongside the founders of the original company.

Venture Mafia was built out of personal curiosity about extraordinary founding teams and the impact of their startups. The solution visualizes alumni networks of leading startups and tracks where founders and early leaders have invested, advised, or held leadership or board positions since leaving their original companies. The platform currently supports PayPal, Skype, Linkedin, eBay, and Spotify, with many more to come.

The data is from publicly available informationsuch as company databases, LinkedIn, press releases and articles. The platform uses a PostgreSQL database for data storage, a Node.js backend and a React frontend with D3.js for the network graph. The backend runs on Google Cloud and the frontend is hosted on Firebase.

The data shows that the most successful alumni networks have three key characteristics:

• Young founders: Younger founders have more time and opportunities to start multiple businesses. For example, all of PayPal’s founders were under the age of 35 at the time of its $800 million IPO in 2002.

• Fast and large exits: Providing the resources, trust and reputation to launch new ventures, attract talent and secure financing. For example, Skype was sold to eBay for $2.6 billion just 2.5 years after its founding.

• Network: The resulting network of talented people with the skills, drive and capital to build new businesses. For example, two Skype co-founders started Starship Technologies together, raising $290 million with the support of a third Skype co-founder.

Venture Mafia is constantly evolving. My goal is to expand the database and add more features that will provide even deeper insights into the people who shape the startup ecosystem. If you are interested in supporting the project, feel free to drop me a line at LinkedIn or let me know in the comments what companies and features you would like to see!

That’s it for today. Thanks Johan for sharing your work with us! Innovative angles to extract, visualize and generate insights from social graphs are crucial for investors across asset classes to leverage their networks in the right way.

Identify the central nodes of the evolving ‘founder factories’, gain early access to them and ensure you cultivate and invest in these relationships. If you pass it on, it will pay for itself many times over.

Stay motivated,
André

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