When Do Venture Capitalists Collaborate? – Evidence on the Driving Forces of Venture Capital Syndication

Abstract

Using a sample of 2,373 unique capital contributions from 437 VCs over subsequent rounds into 961 start-ups during the period 1995-2005 in Germany we disentangle the circumstances under which lead VCs engage in syndicate relationships with partner VCs. The results indicate that syndication is more pronounced when VCs face higher risks that need to be diversified and capital burdens are larger. Moreover, we document that industry investment experience lends legitimacy to lead VCs allowing them to enter syndicate relationships to enhance their network positions. In general, a higher industry experience is associated with more syndication. Lastly, the results show that lead VCs involve new/additional partners in subsequent financing rounds to lever upon their idiosyncratic skills and knowledge to either improve deal selection and/or provide a better quality of managerial advice.

Keywords: Venture Capital, Syndication

JEL Classification: G24, G31