Venture Capital Syndication Research Articles

Venture Capital Syndication under Social Network Theory: Literature Review and Prospect

As an important channel for start-ups to obtain R&D funds and external knowledge and information resources, and as one of the key methods for investment institutions to leverage scale and synergy effects to enhance investment returns, venture capital syndication holds significant research value in the field of venture capital. This paper reviews the literature, summarizing the motivations behind the formation of joint investment networks, the conceptual characteristics of the three core theories of social network theory, and the empirical research on venture capital syndication within the framework of social network theory. It also highlights the existing research results, identifies gaps, and anticipates future research directions.

Ventures’ Technological Redeployability and Corporate Venture Capital Syndication Decisions

Ventures’ Technological Redeployability and Corporate Venture Capital Syndication Decisions

Vicarious learning from peer innovation failures: The moderating effects of venture capital syndication networks

AbstractFirms can derive insights not only from their own failures but also from the innovation failures of counterparts in the same industry. This study investigates how 109 Chinese A‐share listed high‐tech firms (2013–2022) learn from counterparts' innovation failures to improve their success rate of innovation and emphasizes the crucial role of venture capital (VC) syndication networks in facilitating knowledge transfer. Central VCs within the network notably enhance vicarious learning from others' failures. Further empirical analysis shows a significant increase in the success rate of exploitative innovations, while the impact on exploratory innovations is minimal.

Venture capital and stock price informativeness: Evidence from China

AbstractThis study shows that, unlike the positive role played by other institutional investors documented in the literature, venture capital (VC) in pursuit of short‐term gains through exit strategies reduces the stock price informativeness of portfolio companies, especially when VC is associated with a higher level of the ability (longer‐term VC directors, large VC syndicate), incentive (private VC sponsors), and willingness (less reputable VCs) to manipulate information. Furthermore, internal and external monitoring helps mitigate the negative impact of VC on stock price informativeness. Finally, earnings management and reduced information disclosure mediate the relationship between VC involvement and stock price informativeness.

Overcoming Uncertainty in Novel Technologies: The Role of Venture Capital Syndication Networks in Artificial Intelligence (AI) Startup Investments in Korea and Japan

This paper investigates how historical inter-firm syndication networks influence venture capitalists’ (VCs) propensity to invest in startups pursuing novel, uncertain technologies, with a focus on artificial intelligence (AI). We theorize that VCs’ positional attributes within cumulative syndication networks determine their access to external expertise and intelligence that aid AI investment decisions amidst informational opacity. Specifically, reachability to prior AI investors provides referrals and insights transmitted across short network paths to reduce ambiguity. Additionally, VC brokerage between disconnected industry clusters furnishes expansive, non-redundant information that is pivotal for discovering and assessing AI opportunities. Through hypotheses grounded in social network theory, we posit network-based mechanisms that equip VCs to navigate uncertainty when engaging with ambiguous innovations like AI. We test our framework, utilizing comprehensive historical records of global venture capital investments. Analyzing the location information of VC firms in this database, we uncovered a history of 14,751 investments made by Korean and Japanese firms. Using these data, we assembled an imbalanced panel dataset from 1984 to 2022 spanning 230 Korean and 413 Japanese VCs, with 4508 firm-year observations. Negative binomial regression analysis of this dataset reveals how historical relational patterns among venture capital firms foster readiness to evaluate unfamiliar innovations.

Attention to alliances: The role of attention, relational embeddedness, and concentrated governance in the success of U.S. venture capital syndicates

Extending the Attention-based View (ABV) to firms’ alliances, this study examines the relationship between the degree of attention to a focal alliance by alliance members and its success. We also examine how two contextual factors of collaboration, relational embeddedness and concentration of governance, affect this relationship in the context of U.S. venture capital syndicates. We find that attention increases the chances of syndicate success, that relational embeddedness of partners enhances the positive effect of attention, and that concentrated syndicate governance negatively moderates the effect of attention. This study joins the nascent stream of literature that emphasizes the importance of organizational factors in outcomes of inter-firm alliances and contributes to the integration of insights from the ABV and alliance research traditions to build a more comprehensive understanding of alliance success factors.

Comparing Radical and Incremental Innovation in Venture Capital Syndication: Exploring the Influence of R&D Intensity and Sector-Specific Effects

Comparing Radical and Incremental Innovation in Venture Capital Syndication: Exploring the Influence of R&D Intensity and Sector-Specific Effects

VC Syndication and the Earnings Management Behaviors of Invested Companies

Using the sample data of China's Growth Enterprise Market (GEM) since 2009, in this paper, we empirically test the impacts of venture capital syndication on the earnings management behaviors of the invested companies. To be specific, we focused on the internal characteristics of venture capital syndications and then examined those attributes on earnings management behaviors of invested companies. Our research bridges the gap in literature by providing a systematic analysis in this field. It will also provide significant insights for policy makers in terms of the establishment of joint investment portfolios, the formulation of investment strategies for venture capital companies, and the cooperation between venture capital institutions and venture capital firms etc.

Prior co-investments and exits: a study on European venture capital syndicates

ABSTRACT Building on recent developments in the literature, we investigated whether the practice of repeatedly investing with the same partners impacts outcomes for venture capital syndicates. Research shows that European venture capitalists have different attitudes to their American counterparts, which might result in a different ability in benefiting from prior co-investing activities. Hence, we analysed how successful prior collaborations and the concentration of prior ties in an investment syndicate affects the probability of successfully exiting an investment. We also examined the role of prior ties as a determinant of the time to successful exit. From an analysis of 922 first-ever syndicated rounds in Europe between 2000 and 2009, we find that prior ties are not a significant determinant of successful exits. However, prior successful collaborations do play a significant role, as does the concentration of prior ties. We also find that a U-shaped relationship links prior co-investments with the to time to exit. These results should be helpful for managers involved in inter-organisational investment collaborations and to policymakers looking for ways to spur the European venture capital ecosystem.

Like Performance, Perfect Match: Role of Past Performance in Venture Capital Syndication

Syndication among venture capital firms (VCFs) is increasingly prevailing in recent years, especially in emerging markets like China. Some of the VCFs have to syndicate with “worse performers” despite the “better performer preference.” The primary aim of this article is to contribute to our understanding of the impact performance gap among syndicated VCFs on formulation and duration of syndicate. The data consist of over 295,000 pair of VCFs syndicated in China mainland from 2000 to 2020. We find the negative effect of performance gap on the propensity of syndication with self-categorization of VCFs as the moderator. The key contribution of this paper is to test the significance of homogenous performance in syndication. This study advances the knowledge of agency in collaboration and sheds new light on organizational performance feedback in venture capital markets.

An alter-centric perspective on status disparity and newcomer additions in multiparty syndicates

Status dynamics play a critical role in venture capital (VC) syndication. Prior research on multiparty syndicates has shown how status differences among current syndicate members affect how the syndicate searches for new investors in later investment rounds. However, it is unclear how potential newcomers evaluate whether or not to join a syndicate based on the degree of status disparity among current syndicate members. We adopt an alter-centric approach by examining how an existing syndicate’s status disparity affects a potential newcomer’s willingness to join. For potential newcomers, we contend that syndicate status disparity is a double-edged sword, both deterring newcomers due to low perceptions of syndicate trust while simultaneously attracting newcomers at the prospect of accessing diverse future investment opportunities. Whether the perceived costs of syndicate status disparity outweigh the perceived benefits for newcomers depends upon the degree of risk associated with the venture deal. Across two studies—a field experiment of 193 institutional investors and an archival study of 3644 multiparty syndicates—we found that newcomers are attracted to syndicate status disparity when deal risk is low but deterred from syndicate status disparity when deal risk is high. Our article highlights how newcomer additions to multiparty syndicates entail a complex interplay between features of co-investors and features of the venture deal.

Informational Holdup by Venture Capital Syndicates

AbstractWe argue that syndicates associate venture capitalists (VCs) with uneven skill levels in order to lower their expected gains from threatening to stop financing: Non-continued participation would send a milder negative signal to alternative financiers. This can explain the empirical observations that i) early-round syndicates regularly associate VCs with different levels of experience and ii) follow-on syndicates often involve none of the early-round VCs. Consistent with the theory, we find empirically that the heterogeneity of VC experience levels in a syndicate is i) negatively related to the extent to which the founders of the VC-backed firm are professionally well connected and ii) positively related to the likelihood of syndicate switching in a later round.

The Interplay of Cooperation and Competition in Venture Capital Syndication on Start-Up Acquisition

The Interplay of Cooperation and Competition in Venture Capital Syndication on Start-Up Acquisition

The effects of organizational learning on innovation and performance of venture capital-backed firms: the moderating effect of syndication

PurposeDespite the innovation and performance of venture capital (VC)-backed firms receiving extensive attention, how and under what conditions VC influences innovation and performance remains unclear. The present paper draws on organizational learning (OL) theory to examine the moderating effect of syndication on backed firms.Design/methodology/approachDrawing on a literature review that connects OL and innovation to the performance of VC-backed firms, this study examines the effects of OL on innovation and firm performance among these firms by questioning the moderating effect of VC syndication. A sample of 78 VC-backed firms was used to test the robustness of the proposed model and causal relationships through the use of partial least squares structural equation modeling (PLS-SEM).FindingsThe empirical evidence demonstrates that the intervention of venture capitalists can not only stimulate innovation, but also have a significantly positive effect on firm performance. Furthermore, the evidence reveals that syndication of VC investment supports backed firms in improving the firms' performance and generating innovation from acquired knowledge.Originality/valueTo the best of the authors' knowledge, this study is the first in North Africa that focuses on the moderating effects of venture capital syndication on the relationships between OL, innovation and firm performance.

Venture Capital Syndication Network Structure of Public Companies: Robustness and Dynamic Evolution, China

Venture capital plays a vital role in boosting economic growth by providing an inexhaustible impetus for economic innovation and development. We use all the joint venture capital events of Chinese listed companies in the past 10 years to describe the characteristics of the joint venture capital network structure, identify the dynamic evolution characteristics of the community, and introduce random attacks and deliberate attacks to explore the resilience of joint venture capital cooperation. The study finds that the joint venture capital network in China has expanded in scale, with an increasing number of participants and a diversified investment industry. However, the connection between members within the network remains relatively loose, indicating fragmentation and a need to improve network quality. The community structure of core members is significant, with evident differences in scale. The network exhibits weak robustness, relying heavily on key enterprises and demonstrating a poor ability to resist external interference. The study proposes countermeasures and suggestions for optimizing the network structure of joint venture capital, aiming to enhance the environment and performance of joint venture capital and promote the high-quality development of China’s joint venture capital market.

Understanding investor co-investment in a syndicate on equity crowdfunding platforms

PurposeConsidering the unique characteristics of equity crowdfunding platforms including the removal of stringent structural barriers (e.g. lack of co-location), high visibility and traceability of investor characteristics, large pool of available investors and simplified transaction process, the authors aim to examine how the two most prevalent mechanisms (i.e. homophily and repeated ties) unfold in this context by incorporating the contextual characteristics. The authors theorize an inverted U-shaped relationship between leader-backer similarity and the likelihood of co-investment in a syndicate on equity crowdfunding platforms. In addition, a leader–backer dyad is more likely to form new syndicates if the students have more prior co-investment ties.Design/methodology/approachThe empirical study is based on data from the AngelList syndicate platform and a linear probability model (LPM) with fixed effects is adopted to estimate the syndicate formation.FindingsThe authors find that the similarity between a leader and a backer has an inverted U-shaped relationship with the leader and backer's likelihood of co-investment in a syndicate, which is different from the dominant homophily-based tie formation in venture capital (VC) syndicates and other digital platform contexts. Although equity crowdfunding platforms encourage the possibility of exploring new partners, investors are more likely to co-invest with others who have stronger prior ties.Originality/valueThis research theoretically contributes to the scant literature of equity crowdfunding syndicates by contextualizing two most prevalent mechanisms (i.e. homophily and repeated ties) driving tie formation in VC syndicates and digital platforms.

Like Performance, Perfect Match: Role of Past Performance in Venture Capital Syndication

Like Performance, Perfect Match: Role of Past Performance in Venture Capital Syndication

Does Being In-Person Matter? Evidence from Venture Capital Syndication

Does Being In-Person Matter? Evidence from Venture Capital Syndication

The impact of venture capital funds with foreign limited partners investment on enterprise internationalization: evidence from China

This paper examines the relationship between local venture capital (VC) funds and portfolio enterprise internationalization from the perspective of limited partners (LPs). Based on a sample consist of 581 listed enterprises invested by local VC funds in China during 2009–2021, it’s found that, compared to the VC funds invested by local LPs completely (LLP_VC), the VC funds with foreign LP investment (FLP_VC) are more likely to help portfolio enterprises list overseas. If FLP_VC syndicates or act as a major investor, it will have a greater role in promoting the internationalization of enterprises.

Mapping the venture capital and private equity research: a bibliometric review and future research agenda

The fields of venture capital and private equity are rooted in financing research on capital budgeting and initial public offering (IPO). Both fields have grown considerably in recent times with a heterogenous set of themes being explored. This review presents an analysis of research in both fields. Using a large corpus from the Web of Science, this study used bibliometric analysis to present a comprehensive encapsulation of the fields’ geographical focus, methodological choices, prominent themes, and future research directions. Noteworthily, the foundational themes in venture capital research are venture capital adoption and financing processes, venture capital roles in business, venture capital governance, venture capital syndication, and venture capital and creation of public organizations. In private equity research, style drift into venture capital emerges as a key theme alongside buyouts and privatization, and valuation and performance of private equity investment.