The Effect of Job Mobility on Venture Capital Syndication: A Study of China’s Venture Capital Industry

Abstract

In China, the proportion of syndication in total investments has increased from 28.65% in 2007 to 42.08% in 2017. Extant research on syndication has recognized it as an effective way to mitigate risks and enhance the performance of both VC firms and target ventures. Regarding the antecedents of syndication, scholars have explored a variety of firm level factors that explain the formation of syndication. For example, from the VC firm perspective, VC firms’ past experience, reputation, and network positions are key factors influencing their attractiveness to potential syndicate partners; from the target firm perspective, the location and industry of target firms will affect VC syndication decisions. Despite of the growing evidence on the antecedents of syndication, most of prior studies have focused on firm-level factors, but lacked an understanding of how individuals matter in VC syndication formation. However, the effect of venture capitalists’ job mobility on syndication has not been addressed by prior literature. Therefore, how does venture capitalists’ job mobility influence the likelihood of syndication between the losing and the receiving VC firms? In specific, we test the impact of venture capitalists’ job mobility on VC firms’ syndication formation, and the moderating roles of two alternative mechanisms: geographic proximity and social proximity. Utilizing the investment data of 1 015 VC firms in China over 2000-2016, we find that the mobility of venture capitalists increases the likelihood of syndication between the losing and the receiving VC firms; the larger the geographic distance is, or the less the prior interactions between the two VC firms are, the stronger the positive effect of venture capitalists’ job mobility on syndication is. We also employ Rare-event logit models, Heckman two-stage least squares estimations （2SLS）, and Propensity Score Matching （PSM） approach to verify the robustness of the findings. The study contributes to the literature in two ways: First, it explores the individual- and interpersonal-level antecedents of syndication, which complements the prior research focusing on firm-level explanations, and more generally, enhances our understandings of the micro-foundation of alliance formation. Second, by investigating the contingent roles of geographic distance and prior interaction, it reveals the boundary conditions for venture capitalists to make effect on the formation of syndication, contributing to our knowledge of the interplay between individual- and firm-level factors on interfirm collaborations. Additionally, by leveraging China’s VC industry as the research context, the study sheds light on the co-evolution of interpersonal and interfirm networks in the Chinese context.