Birds of a Feather or Celebrating Differences? The Formation and Impact of Venture Capital Syndication

54 Pages Posted: 16 Mar 2009

See all articles by Qianqian Du

Qianqian Du

Hong Kong Polytechnic University

Date Written: March 15, 2009


This paper examines venture capitalists' preferences for syndication partners. Do venture capital firms prefer partners that are similar to or different from them? How do venture capitalists' preferences for partners affect the performance of the syndicated investments? Will the choice of syndication partners have any impact on the venture capital firms themselves? Heterogeneity among syndication partners may increase transaction costs, but offers syndication partners valuable learning opportunities in the long run, suggesting a tradeoff between the short-term costs versus long-term benefits. Using data on U.S. venture capital investments, this paper shows that venture capital firms are less likely to syndicate with partners who are different from them. The preferences for syndication partners, however, have different implications for the portfolio companies and the venture capital firms. Companies funded by heterogeneous syndicates are less likely to go public or be acquired by other companies. However, venture capital firms that co-invest with more heterogeneous partners are more likely to survive. The paper develops a new method for empirically examining the formation of syndication among multiple firms. It also addresses issues of endogeneity.

Keywords: Venture capital syndication, investor heterogeneity

JEL Classification: G24

Suggested Citation

Du, Qianqian, Birds of a Feather or Celebrating Differences? The Formation and Impact of Venture Capital Syndication (March 15, 2009). Available at SSRN: or

Qianqian Du (Contact Author)

Hong Kong Polytechnic University ( email )

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The Hong Kong Polytechnic University
Hong Kong, Hung Hom, Kowloon M923

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