Recommending investors for new startups by integrating network diffusion and investors’ domain preference

Abstract

Over the past decade, many startups have sprung up, which create a huge demand for financial support from venture investors. However, due to the information asymmetry between investors and companies, the financing process is usually challenging and time-consuming, especially for the startups that have not yet obtained any investment. Because of this, effective data-driven techniques to automatically match startups with potentially relevant investors would be highly desirable. Here, we analyze 34, 469 valid investment events collected from www.itjuzi.com and consider the cold-start problem of recommending investors for new startups. We address this problem by constructing different tripartite network representations of the data where nodes represent investors, companies, and companies' domains. First, we find that investors have strong domain preferences when investing, which motivates us to introduce virtual links between investors and investment domains in the tripartite network construction. Our analysis of the recommendation performance of diffusion-based algorithms applied to various network representations indicates that prospective investors for new startups are effectively revealed by integrating network diffusion processes with investors' domain preference.Our main goal is to fill this gap by designing and validating recommendation system techniques to identify suitable investors for new startups. To this end, we analyze 34,469 investment events collected from www.itjuzi.com [1]. As we focus on startups that received no previous investments in the past, widely-studied recommendation techniques based on bipartite networks [49] are not applicable here since the new startups with no previous investors turn out to be isolated nodes in the investor-company bipartite network, making them unreachable by diffusion processes. Our problem can be classified as a cold-start problem [35]: When a new actor enters the system, there is insufficient past information to provide him/her with a recommendation [26].To overcome the cold-start problem, we resort to tagging techniques [16].On the www.itjuzi.com platform, each startup is required to provide several tags that define its business scope. We found that the investors have a strong preference toward a small number of tags -in particular, in the majority of cases, an investor tends to invest in startups that feature her favorite tag. Hence, motivated by this finding and the key role played by the industry field in investment decision making [10, 28], we use tags as a key piece of information to generate recommendations.By leveraging startups' tag information, we construct three different tripartite network representations of the investment system. The most natural tripartite representation is one where investors are connected to the startups they invested in, and startups are connected to their self-reported tags -we refer to this representation as the tagcompany-investor (TCI) representation. This representation is natural because it is directly based on the collected ...

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