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Why do Venture Capital Companies syndicate? Some New Insights

Author

Listed:
  • Awounou-N'Dri Honorine

    (ISG - ISG International Business School [Paris])

  • Philippe Desbrières

    (CREGO - Centre de Recherche en Gestion des Organisations (EA 7317) - Université de Haute-Alsace (UHA) - Université de Haute-Alsace (UHA) Mulhouse - Colmar - UB - Université de Bourgogne - UFC - Université de Franche-Comté - UBFC - Université Bourgogne Franche-Comté [COMUE])

Abstract

Financial theory and resource-based theory are often used to explain syndication practice among venture capital (VC) firms (Lockett & Wright, 2001; Manigart et al., 2006). While extending this diverse set of theoretical frameworks, we investigate the propensity of VC firms to syndicate to provide new insights on the syndicate size, duration and the number of financing rounds of VC firms. While the existing research has focused on the entire VC entity within syndication or on the sole leader of the syndicate, our study considers both parties within the syndicate, the leader and the other syndicate members. Using a longitudinal and unique data set of 196 venture backed companies over a 19-year period, financed through syndicated investments in France, this research highlights a number of key findings. At first, our empirical study supports earlier work on syndication in Europe. The propensity to syndicate is driven by finance considerations, alongside to financial corporate governance arguments. Particularly, the higher representation of VC firms at the board is significantly and positively correlated with the propensity of investors to syndicate their deals and to the number of financing rounds. We also show that VC firms are motivated by resource based arguments, especially the lead investors whose propensity to syndicate depends on their complementary of skills with minority VC firms. At second, our study provides further evidence that the syndicate size and duration mainly relate also to resource-based considerations. VC firms co-invest on a longer period of time when the lead and non-lead investors are highly experienced. More complementary of skills among investors is associated with a greater number of members in the syndicate and a higher number of financing rounds. Lastly, we find support that the industry sector of the investee firm, especially when defined as a sector of high level of specific knowledge also relates to the number of financing rounds.

Suggested Citation

  • Awounou-N'Dri Honorine & Philippe Desbrières, 2016. "Why do Venture Capital Companies syndicate? Some New Insights," Post-Print hal-01622455, HAL.
    • Handle: RePEc:hal:journl:hal-01622455
    as

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