The company you keep: Syndicate formation in venture capitalists’ cross-border investments

This paper studies how venture capitalists trade-off agency and resource considerations when syndicating for cross-border investments. We argue that syndicate size and the decision to partner with local VCs involves a complex trade-off between the potential agency costs from multiple VCs in one syndicate and the benefits of foreign VCs with complementary resource endowments. Based on data of 15,725 cross-border VC investments we show that, in the presence of geographic and psychic distances between VC syndicate members, VCs reduce complexity from syndicate size (agency perspective) but are more likely to invite local VC co-investors (resource perspective). VC firms with high international recognition rely less on other syndicate members’ resources and minimize agency costs through smaller syndicates. VC firms with high host-country recognition face lower local partner search costs and have a hgher probility to have local partners in the syndicate. Our paper contributes a framework for syndication in cross-border VC investment that recognizes the importance of distance between VCs and the role of recognition of VCs as a valuable resource in the syndication trade-off.