The syndication of private equity: Evidence from the UK

This paper uses UK survey data to investigate the different motives that venture capital firms have for syndicating equity investments, partner selection, and the link between competition and syndication in the market. The traditional finance perspective views syndication as a response to the need to diversify away risk, whereas the resource-based theory views syndication as a means of accessing a competitor's firm-specific resources. The results of the study indicate that syndication is more a response to the need to spread risk than share information and manage investments. Also, when the sample was subdivided according to minimum investment preference the resource-based perspective was found to be even less important for those firms who only invested sums of 5 million and greater. This result also held for the finance theory perspective for syndicating deals. The above findings were mirrored in the results relating to partner selection as the financial characteristics and resource-base of the firm were not found to be important factors in selecting a syndicate partner. Rather, partner selection was found to be far more influenced by a past interaction, reputation and investment style. Finally, evidence was found to suggest that competition in the venture capital market exerts a negative influence over a firm's decision to syndicate out a deal; however, this influence is significantly less for the decision to syndicate in to a deal.