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What drives Venture Capital Syndication

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Author Info

  • Christian Hopp

    (University of Konstanz)

  • Finn Rieder

    (German Banking Association)

Abstract

This paper analyses the syndication behavior of VC organisations and the factors influencing their overall propensity to co-invest. We develop hypothesis concerning the investment behavior of Venture Capitalists in the German market and compare these hypothesis to the actual empirical evidence from a data set including 2,500 VC investments. We find that the underlying theories of financial and resource driven motives can indeed be used to explain the observed behavior for syndicated venture capital investments. We show that mainly Resource driven motives foster the propensity to syndicate an investment. Additionally, we find that Venture Capital Firms tend to diversify their portfolio, such that both motives of venture capital syndication (Finance and Resource driven) seem to be present at the same time and play a significant role simultaneously for the decision to jointly co-invest. We find evidence that a lower level of experience and expertise fosters the need to syndicate an investment.

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File URL: http://128.118.178.162/eps/fin/papers/0412/0412023.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Finance with number 0412023.

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Date of creation: 22 Dec 2004
Date of revision: 12 Jan 2006
Handle: RePEc:wpa:wuwpfi:0412023

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Web page: http://128.118.178.162

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Keywords: Venture Capital; Syndication;

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References

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  1. Raaj Kumar Sah & Joseph E. Stiglitz, 1987. "The Architecture of Economic Systems: Hierarchies and Polyarchies," NBER Working Papers 1334, National Bureau of Economic Research, Inc.
  2. Mike Wright, 1998. "Venture Capital and Private Equity: A Review and Synthesis," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 25(5&6), pages 521-570.
  3. Jeng, Leslie A. & Wells, Philippe C., 2000. "The determinants of venture capital funding: evidence across countries," Journal of Corporate Finance, Elsevier, vol. 6(3), pages 241-289, September.
  4. Sophie Manigart & Miguel Meuleman, 2002. "Why do European Venture Capital Companies syndicate?," Finance 0210006, EconWPA.
  5. Manigart, S. & Bruining, H. & Lockett, A. & Meuleman, M., 2002. "Why Do European Venture Capital Companies Syndicate?," ERIM Report Series Research in Management ERS-2002-98-ORG, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus Uni.
  6. Joshua Lerner, 1994. "The Syndication of Venture Capital Investments," Financial Management, Financial Management Association, vol. 23(3), Fall.
  7. Fama, Eugene F, 1991. " Efficient Capital Markets: II," Journal of Finance, American Finance Association, vol. 46(5), pages 1575-617, December.
  8. Lockett, Andy & Wright, Mike, 2001. "The syndication of venture capital investments," Omega, Elsevier, vol. 29(5), pages 375-390, October.
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Citations

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Cited by:
  1. Christian Hopp & Finn Rieder, 2005. "Strukturanalyse des deutschen Marktes für Beteiligungskapital: Unterschiede im Investitionsverhalten unabhängiger, bankenassoziierter und öffentlicher Venture-Capital-Investoren und Auswirkungen au," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 74(4), pages 140-152.
  2. 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).
  3. Casamatta, Catherine & Haritchabalet, Carole, 2007. "Experience, Screening and Syndication in Venture Capital Investments," IDEI Working Papers 443, Institut d'Économie Industrielle (IDEI), Toulouse.
  4. Das, Sanjiv R. & Jo, Hoje & Kim, Yongtae, 2011. "Polishing diamonds in the rough: The sources of syndicated venture performance," Journal of Financial Intermediation, Elsevier, vol. 20(2), pages 199-230, April.
  5. 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.

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