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Venture-Capital Syndication: Improved Venture Selection vs. The Value-Added Hypothesis

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  • James A. Brander
  • Raphael Amit
  • Werner Antweiler

Abstract

Syndication arises when venture capitalists jointly invest in projects. We model and test two possible reasons for syndication: project selection, as an additional venture capitalist provides an informative second opinion; and complementary management skills of additional venture capitalists. The central question is whether venture capitalists are engaged primarily in selection or in managerial value added. These alternatives imply contrasting predictions about comparative returns to syndicated and standalone investments. Our empirical analysis, using Canadian data, finds that syndicated investments have higher returns, favoring the value-added interpretation. We also discuss risk sharing and project scale as possible reasons for syndication. Copyright (c) 2002 Massachusetts Institute of Technology.

Suggested Citation

  • James A. Brander & Raphael Amit & Werner Antweiler, 2002. "Venture-Capital Syndication: Improved Venture Selection vs. The Value-Added Hypothesis," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 11(3), pages 423-452, September.
    • Handle: RePEc:bla:jemstr:v:11:y:2002:i:3:p:423-452
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