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Learning and Syndication in Venture Capital Investments

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  • Casamatta, Catherine
  • Haritchabalet, Carole

Abstract

The objective of this Paper is to understand: i) why venture capital investments are often syndicated; and ii) what are the effects of syndication on the post-investment involvement of venture capitalists. We analyse a model where a venture capitalist's efficiency to screen an uncertain project depends both on experience and on the signal they can obtain from another specialized investor. Disclosing the existence of the investment project to this second investor is harmful since the latter becomes de facto a potential competitor. We show that this potential competition can only be avoided through syndication, which affects the learning process. We further explore the cost of syndication in terms of investment decisions or post-investment involvement of venture capitalists.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3867.

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Date of creation: Apr 2003
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Handle: RePEc:cpr:ceprdp:3867

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Keywords: competition; learning; syndication; venture capital;

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Citations

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Cited by:
  1. Zsuzsanna Fluck & Kedran Garrison & Stewart C. Myers, 2005. "Venture Capital Contracting and Syndication: An Experiment in Computational Corporate Finance," NBER Working Papers 11624, National Bureau of Economic Research, Inc.
  2. Douglas Cumming & Sofia Johan, 2007. "Advice and monitoring in venture finance," Financial Markets and Portfolio Management, Springer, vol. 21(1), pages 3-43, March.
  3. Douglas Cumming & Grant Fleming & Armin Schwienbacher, 2008. "Financial intermediaries, ownership structure and the provision of venture capital to SMEs: evidence from Japan," Small Business Economics, Springer, vol. 31(1), pages 59-92, June.
  4. Elisabete Félix & José Paulo Esperança & Mohamed Azzim Gulamhussen & Cesaltina Pires, 2009. "Uma Análise do Mercado de Capital de Risco Português: Saídas Parciais Versus Saídas Totais," CEFAGE-UE Working Papers 2009_05, University of Evora, CEFAGE-UE (Portugal).
  5. Cumming, Douglas, 2007. "Government policy towards entrepreneurial finance: Innovation investment funds," Journal of Business Venturing, Elsevier, vol. 22(2), pages 193-235, March.
  6. Tykvova, Tereza, 2007. "Who chooses whom? Syndication, skills and reputation," Review of Financial Economics, Elsevier, vol. 16(1), pages 5-28.
  7. Schertler, Andrea & Tykvová, Tereza, 2006. "Rivals or partners? Evidence from Europe's international private equity deals," ZEW Discussion Papers 06-91, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  8. Alvaro Tresierra Tanaka & José Martí Pellón & Marina Balboa, 2012. "Certification effect and capital structure determinants in venture-backed companies," Working Papers. Serie EC 2012-02, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  9. Casamatta, Catherine & Haritchabalet, Carole, 2007. "Dealing with Venture Capitalists: Shopping Around or Exclusive Negotiation," IDEI Working Papers 444, Institut d'Économie Industrielle (IDEI), Toulouse, revised Jul 2011.
  10. Andy Cosh & Douglas Cumming & Alan Hughes, 2005. "Outside Entrepreneurial Capital," ESRC Centre for Business Research - Working Papers wp301, ESRC Centre for Business Research.
  11. Cumming, Douglas & Schmidt, Daniel & Walz, Uwe, 2004. "Legality and venture governance around the world," CFS Working Paper Series 2004/17, Center for Financial Studies (CFS).
  12. Bourjade, Sylvain, 2002. "Diversification of Investor's Expertise in IPOs," MPRA Paper 7259, University Library of Munich, Germany, revised Dec 2007.

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