Abstract
We find that targets backed by venture capital (VC) syndication receive higher acquisition premiums and spend more time negotiating transaction terms. The acquirers of syndicate-backed targets experience lower cumulative abnormal returns surrounding the acquisition announcements; however, they outperform those of individual-backed targets over the long-term. We show that VC syndication creates value for entrepreneurial firms by appointing larger and more independent boards of directors prior to acquisitions. It aligns the incentive of acquirers’ CEO to their shareholders by increasing CEO equity and variable pay. Syndicate-backed targets prefer stock as the method of payment in acquisitions. Taken altogether, we show that VC syndication creates value for not only entrepreneurial firms but also their acquirers in the long-term.
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