Syndication in private equity industry: comparing the strategies of independent and captive venture capitalists

A crucial factor in the efficiency of a syndicated venture capital investment is the level and the nature of skills of the partners involved. Observation of venture capitalists (VC) syndicates shows that the skills of their members are heterogeneous. Some syndicates involve leaders and partners with different levels of specialization and/or experience; in others all the members have similar skills. The purpose of this paper is to analyze whether this heterogeneity is influenced by the nature of the funders of these syndicated deals: do captive and independent VCs privilege different forms of syndication? The paper is organized as follows. First, we review the main results in the literature on the relationships between skills and choices of syndication, followed by a statistical analysis of the French private equity industry which identifies some stylized facts on the kind of partnerships in syndicated deals, in relation to the nature, independent or captive, of the VCs. Second, we develop a theoretical model to explain these stylized facts. The model analyzes whether the VC is captive or independent can influence the characteristics of the optimal form of partnership set up with the other syndicate members. We obtained a number of interesting results that corroborate the stylized facts highlighted by the French private equity industry.