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What drives Venture Capital Syndication

Author

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  • Christian Hopp

    (University of Konstanz)

  • Finn Rieder

    (German Banking Association)

Abstract

This paper analyses the syndication behavior of VC organisations and the factors influencing their overall propensity to co-invest. We develop hypothesis concerning the investment behavior of Venture Capitalists in the German market and compare these hypothesis to the actual empirical evidence from a data set including 2,500 VC investments. We find that the underlying theories of financial and resource driven motives can indeed be used to explain the observed behavior for syndicated venture capital investments. We show that mainly Resource driven motives foster the propensity to syndicate an investment. Additionally, we find that Venture Capital Firms tend to diversify their portfolio, such that both motives of venture capital syndication (Finance and Resource driven) seem to be present at the same time and play a significant role simultaneously for the decision to jointly co-invest. We find evidence that a lower level of experience and expertise fosters the need to syndicate an investment.

Suggested Citation

  • Christian Hopp & Finn Rieder, 2004. "What drives Venture Capital Syndication," Finance 0412023, University Library of Munich, Germany, revised 12 Jan 2006.
    • Handle: RePEc:wpa:wuwpfi:0412023
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    References listed on IDEAS

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    Cited by:

    1. Christian Hopp & Finn Rieder, 2005. "Strukturanalyse des deutschen Marktes für Beteiligungskapital: Unterschiede im Investitionsverhalten unabhängiger, bankenassoziierter und öffentlicher Venture-Capital-Investoren und Auswirkungen auf d," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 74(4), pages 140-152.
    2. Das, Sanjiv R. & Jo, Hoje & Kim, Yongtae, 2011. "Polishing diamonds in the rough: The sources of syndicated venture performance," Journal of Financial Intermediation, Elsevier, vol. 20(2), pages 199-230, April.
    3. Kshitija Joshi & Deepak Chandrashekar & Alexander Brem & Kirankumar S. Momaya, 2019. "Foreign Venture Capital Firms in a Cross-Border Context: Empirical Insights from India," Sustainability, MDPI, vol. 11(22), pages 1-20, November.
    4. Casamatta, Catherine & Haritchabalet, Carole, 2007. "Experience, screening and syndication in venture capital investments," Journal of Financial Intermediation, Elsevier, vol. 16(3), pages 368-398, July.
    5. Violetta Bacon-Gerasymenko & Jonathan D. Arthurs & Sam Y. Cho, 2020. "How and When Investment Horizons Determine Venture Capital Firms’ Attention Breadth to Portfolio Companies," Entrepreneurship Theory and Practice, , vol. 44(3), pages 475-503, May.
    6. Asif Iqbal Siddiqui & Dora Marinova, 2016. "Funding Liquidity Risk, Syndication Behavior And The Risk Culture Of The Australian Venture Capital Industry," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 64(05), pages 1279-1297, December.
    7. Zhiyang Liu & Zhiqi Chen, 2014. "Venture Capital Networks and Investment Performance in China," Australian Economic Papers, Wiley Blackwell, vol. 53(1-2), pages 97-111, June.
    8. Yuejia Zhang, 2018. "Gain or pain? New evidence on mixed syndication between governmental and private venture capital firms in China," Small Business Economics, Springer, vol. 51(4), pages 995-1031, December.
    9. Tykvová, Tereza, 2018. "Legal framework quality and success of (different types of) venture capital investments," Journal of Banking & Finance, Elsevier, vol. 87(C), pages 333-350.
    10. Christian Hopp & Christian Lukas, 2014. "Evaluation frequency and evaluator’s experience: the case of venture capital investment firms and monitoring intensity in stage financing," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 18(2), pages 649-674, May.
    11. Alvaro Tresierra Tanaka & José Martí Pellón & Marina Balboa, 2012. "Certification effect and capital structure determinants in venture-backed companies," Working Papers. Serie EC 2012-02, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    12. Asif Siddiqui & Dora Marinova & Amzad Hossain, 2016. "Venture Capital Networks in Australia: Emerging Structure and Behavioural Implications," Journal of Management and Sustainability, Canadian Center of Science and Education, vol. 6(2), pages 21-35, June.
    13. Zhang, Jing & Pezeshkan, Amir, 2016. "Host country network, industry experience, and international alliance formation: Evidence from the venture capital industry," Journal of World Business, Elsevier, vol. 51(2), pages 264-277.
    14. Catherine Casamatta & Carole Haritchabalet, 2014. "Dealing with Venture Capitalists: Shopping Around or Exclusive Negotiation," Review of Finance, European Finance Association, vol. 18(5), pages 1743-1773.
    15. Sha Zhou & Tao Ma & Zhengchi Liu, 2021. "Crowdfunding as a screener for collective investment," Electronic Commerce Research, Springer, vol. 21(1), pages 195-221, March.
    16. Robert Baldock, 2016. "An assessment of the business impacts of the UK’s Enterprise Capital Funds," Environment and Planning C, , vol. 34(8), pages 1556-1581, December.
    17. Yi Tan & Xiaoli Wang, 2016. "Investigating the Motivations of VC Syndication in China --- Do Chinese Leading VC Firms Make a Difference in Terms of Syndication Decisions," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 8(6), pages 1-78, June.
    18. Catherine Casamatta & Carole Haritchabalet, 2014. "Dealing with Venture Capitalists: Shopping Around or Exclusive Negotiation," Review of Finance, European Finance Association, vol. 18(5), pages 1743-1773.
    19. Guo, Liang & Wei, Yinghong Susan & Sharma, Ruchi & Rong, Ke, 2017. "Investigating e-business models’ value retention for start-ups: The moderating role of venture capital investment intensity," International Journal of Production Economics, Elsevier, vol. 186(C), pages 33-45.
    20. Arif Khurshed & Abdulkadir Mohamed & Armin Schwienbacher & Fan Wang, 2020. "Do venture capital firms benefit from international syndicates?," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 51(6), pages 986-1007, August.
    21. Christian Hopp, 2007. "Nothing Ventured - Nothing Gained? Empirical Evidence on Venture Capital Financing in Switzerland," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 143(III), pages 239-260, September.

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    More about this item

    Keywords

    Venture Capital; Syndication;

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

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