Complementary or conflictory?: the effects of the composition of the syndicate on venture capital-backed IPOs in the US stock market

Abstract

This study investigates how syndicated investment among financial and strategic investors, such as independent venture capitalists (IVCs) and corporate venture capitalists (CVCs), affects the performance of the investee firms. While these different types of investors provide different but complementary non-financial value-added to the investee firms, their inherent differences in motives and objectives of the investment can also lead to conflict about the operational controls of the investee firms. Using a sample of VC-backed IPOs in the US stock market, we analyze how the composition of the investment syndicate influences the investee’s exit through IPO. Empirical results indicate that IVCs and CVCs could face increasing conflicts when they syndicate their investment with a balanced distribution of ownership. As a result, investees backed by these syndicates can incur delays to their IPO exit. By addressing the syndicate investment among different types of investors and its impact on the performance of the investee, this study complements the literature on entrepreneurial finance and IPOs.