Abstract
This paper develops a theory and provides empirical evidence on the interaction between venture capital syndication and …rm entry. When deciding whether to syndicate an investment, a venture capital (VC) …rm faces the following trade-o¤: on the one hand, syndication is useful to obtain a second opinion about an investment opportunity; on the other hand, sharing information with another VC is risky because it increases the likelyhood that the latter invests in other similar deals, thereby increasing competition in the industry and reducing investment returns. Thus, syndication may increase entry. However, since VC …rms’ pro…ts are very sensitive to investment returns, the lead VC …rm in a syndicate may actually discourage the
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