Venture capital firms' lead orientation and entry to new investment markets

Abstract

This study focuses on how a venture capital (VC) firm's lead orientation (i.e., the propensity to act as lead investors rather than follower investors in its past syndication investments) influences its decision to enter new investment markets, and how such a relationship is altered by VC firm's position in the syndication network. Based on empirical analyses that use detailed information on 11,219 investment deals in China from January 1999 to June 2016, we find an inverted U-shaped relationship between VC firms' lead orientation and the distance between the new-entered market and the existing markets. In addition, a VC firm's network centrality weakens the inverted U-shaped relationship, while the level of network constraint strengthens the main effect. To establish our findings' reliability, we conducted robustness checks using different measures and subsamples. Additionally, we employed the instrumental variable approach and the Heckman selection model to address potential endogeneity issues, further strengthening the validity of our findings.