Learning and Syndication in Venture Capital Investments
AbstractThe 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 InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3867.
Date of creation: Apr 2003
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Find related papers by JEL classification:
- D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
- G20 - Financial Economics - - Financial Institutions and Services - - - General
- G30 - Financial Economics - - Corporate Finance and Governance - - - General
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