Syndication among venture capitalists: When and with whom

Abstract

Venture capitalists have both a pre- and post-investment role in their portfolio firms. If their pre-investment due diligence is non-verifiable, second opinion has to be obtained from those who can become syndicating partners and benefit from investment. But these partners are also potential competitors. Using a moral hazard model emphasizing information generation rather than information revelation, we study how these factors affect the “lead” VC's syndication decision and the efficiency of his decision. Moreover, the size and composition of VCs' network of contacts help determine the intensity of effort in due diligence and provide conditions for the choice of one VC over another.

Citation

Bubna, A. (2002), "Syndication among venture capitalists: When and with whom", Research in Finance (Research in Finance, Vol. 19), Emerald Group Publishing Limited, Leeds, pp. 285-321. https://doi.org/10.1016/S0196-3821(02)19013-7