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The Design of Syndicates in Venture Capital

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Author Info

  • 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.

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Bibliographic Info

Paper provided by Fundacion BBVA / BBVA Foundation in its series Working Papers with number 201037.

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Length: 31
Date of creation: Jun 2006
Date of revision:
Handle: RePEc:fbb:wpaper:201037

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Related research

Keywords: Venture capital; syndication deals; asymmetric information.;

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Cited by:
  1. 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.
  2. Marco Da Rin & Thomas F. Hellmann & Manju Puri, 2011. "A survey of venture capital research," NBER Working Papers 17523, National Bureau of Economic Research, Inc.
  3. 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.
  4. 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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