Risk, capabilities, and international venture capital syndication in China

Abstract

PurposeThe purpose of this paper is to advance a holistic model of venture capital (VC) firms’ syndication decisions in an emerging economy. When considering syndication with local partners, VC firms consider multiple sources of risk related to firm-specific characteristics (life-cycle, operational and political). In conjunction with these risk factors, they also consider their own capabilities, namely, their knowledge breadth and knowledge depth. Knowledge breadth stems from a VC firm’s network position and knowledge depth is a result of its prior industry expertise. Together, these capabilities have competing impacts on VC firms’ desire to syndicate. From one perspective, VC firm capabilities may help deal with risk such that syndication may not be perceived as necessary. Alternatively, VC firm capabilities may signal attractiveness to a local partner and allow the VC firm to syndicate more easily.Design/methodology/approachFuzzy-set qualitative comparative analysis is conducted on a sample of 111 US VC firms investing in China between 1993 and 2010.FindingsLower VC firm capabilities are associated with a tendency not to syndicate with a local partner when venture risk factors are low. This pattern may arise because of such VC firms’ relative lack of experience with partnership management or weaker appeal to local partners.Originality/valueThis study is one of the earliest attempts to develop a neo-configurational perspective within the VC literature and thus contributes to a more nuanced understanding of international VC firms’ strategic behaviour in emerging economies by examining multiple risks and capabilities simultaneously and in conjunction.