Abstract
This study aimed to explore how both geographic and industry distances, as potential barriers, affect the sustainability for venture capital (VC) syndication. Specifically, we examined the influences of initial public offering (IPO) activity as a market environment factor and foreign VC as a firm character on VC syndication in the tourism and hospitality sectors, together with the consideration of moderating effects of geographic and industry distances. Using a purposefully developed dataset of VC deals made in China, involving 645 VC firms and 592 VC-backed venture companies from 1991 to 2017, the empirical analysis indicated that both IPO activity and foreign VC were positively related to VC syndication. Geographic distance was found to negatively moderate the relationship between IPO activity and VC syndication; on the contrary, industry distance was found to positively moderate the relationship between foreign VC and VC syndication. These findings revealed that distances are not necessarily barriers to sustainability for VC syndication. This study provided an integrated view on the factors and barriers influencing the sustainability of VC syndication in tourism and hospitality sectors. It advances the knowledge of VC syndication in tourism investment and sheds light on sustainable entrepreneurship in tourism and hospitality.
Highlights
In recent decades, we have witnessed rapid growth of entrepreneurial activities in emerging economies
Consistent with Gompers et al (2016), we defined the lead venture capital (VC) status according to the following standards: The lead VC firm is defined as the founding investor, who invested in the deal first; if multiple VC firms invested at the same round, we defined the lead VC firm as the one on the earliest investment date; if the round and date information combined still could not effectively determine the lead VC firm, we looked at the amount invested by defining the lead VC firm as the one with the largest amount invested [49]
In model 2 of Table 3, the effect of initial public offering (IPO) activity is positive and significant (b = 0.0095, p < 0.01). This result strongly supports hypothesis 1, which predicted that active IPO activities in the location of the venture company increase VC syndication
Summary
We have witnessed rapid growth of entrepreneurial activities in emerging economies. New startups assume the principal responsibility for industrial innovation and changes [1]. Venture capital (VC) firms by their nature invest in entrepreneurial businesses with high growth and profit return prospects. It is common to see VC firms co-invest in a target business partnering with one or more other VC companies. This phenomenon has been defined in the literature as VC syndication [6,7,8]. VC firms are able to provide complementary resources, knowledge, and expertise for new ventures and disperse operation risks on account of the deficiency of investments in a specific industry or region [9,10,11]. VC syndication is increasingly being recognized as an effective solution for startups’ financial constraints, which contributes to promoting sustainable entrepreneurship worldwide
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