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The Design of Syndicates in Venture Capital

Author

Listed:
  • Cestone Giacinta

    (UNIVERSITY OF SALERNO)

  • Lerner Josh

    (UNIVERSITY OF SALERNO HARVARD BUSINESS SCHOOL)

  • White Lucy

    (UNIVERSITY OF SALERNO HARVARD BUSINESS SCHOOL)

Abstract

We argue that the process whereby a venture capital syndicate is formed is characterized by two-sided asymmetric information, as the profitability signals held by different VCs are non-verifiable and manipulable. We analyze how an appropriate design of the syndicating VCs cash-flow rights can induce them to truthfully reveal their signals to each other. We then study how the incentive costs of syndication and the shape of financial claims vary with the VCs levels of expertise in evaluating entrepreneurial projects.

Suggested Citation

  • Cestone Giacinta & Lerner Josh & White Lucy, 2006. "The Design of Syndicates in Venture Capital," Working Papers 201037, Fundacion BBVA / BBVA Foundation.
    • Handle: RePEc:fbb:wpaper:201037
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    Citations

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    Cited by:

    1. Maxin, Hannes, 2018. "The Corporate Venture Capital Exit Decision," VfS Annual Conference 2018 (Freiburg, Breisgau): Digital Economy 181647, Verein für Socialpolitik / German Economic Association.
    2. Casamatta, Catherine & Haritchabalet, Carole, 2007. "Experience, screening and syndication in venture capital investments," Journal of Financial Intermediation, Elsevier, vol. 16(3), pages 368-398, July.
    3. Rin, Marco Da & Hellmann, Thomas & Puri, Manju, 2013. "A Survey of Venture Capital Research," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, volume 2, chapter 0, pages 573-648, Elsevier.
    4. Hannes Maxin, 2020. "Corporate venture capital and the nature of innovation," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 29(1), pages 1-30, January.
    5. Suting Hong, 2013. "Competition, syndication, and entry in the venture capital market," Working Papers 13-49, Federal Reserve Bank of Philadelphia.
    6. Douglas Cumming & Na Dai, 2013. "Why Do Entrepreneurs Switch Lead Venture Capitalists?," Entrepreneurship Theory and Practice, , vol. 37(5), pages 999-1017, September.
    7. Kang, Jun-Koo & Li, Yingxiang & Oh, Seungjoon, 2022. "Venture Capital Coordination in Syndicates, Corporate Monitoring, and Firm Performance," Journal of Financial Intermediation, Elsevier, vol. 50(C).
    8. Wang, Lanfang & Wang, Susheng, 2012. "Endogenous networks in investment syndication," Journal of Corporate Finance, Elsevier, vol. 18(3), pages 640-663.

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