Informational Hold-up by Venture Capital Syndicates

70 Pages Posted: 10 Sep 2021 Last revised: 11 Jan 2022

See all articles by Suting Hong

Suting Hong

ShanghaiTech University - School of Entrepreneurship and Management

Pierre Mella-Barral

Toulouse Business School

Date Written: January 10, 2022

Abstract

We develop a theory of informational hold-up by incumbent VC syndicates, in the spirit of Sharpe (1990) and Rajan (1992). The theory can explain and relate the empirical observations that (a) early round syndicates regularly associate VCs with different levels of experience and (b) follow-on syndicates often involve none of the early round VCs. Consistent with the theory, we find empirically that the heterogeneity of VC experience levels in a syndicate is (i) negatively related to the extent to which outside VCs trust the entrepreneur and (ii) positively related to the likelihood of syndicate switching in a later round.

Keywords: Venture Capital, Syndication, Staged Investment, Heterogeneity, Switching, Network Centrality

JEL Classification: G24, L26, D85

Suggested Citation

Hong, Suting and Mella-Barral, Pierre, Informational Hold-up by Venture Capital Syndicates (January 10, 2022). ShanghaiTech SEM Working Paper No. 2021-008, Available at SSRN: https://ssrn.com/abstract=3920104 or http://dx.doi.org/10.2139/ssrn.3920104

Suting Hong (Contact Author)

ShanghaiTech University - School of Entrepreneurship and Management ( email )

100 Haike Rd
Pudong Xinqu, Shanghai
China

Pierre Mella-Barral

Toulouse Business School ( email )

20, bd Lascrosses
Toulouse, 31068
France

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