Working Paper: CEPR ID: DP3867
Authors: Catherine Casamatta; Carole Haritchabalet
Abstract: The objective of this Paper is to understand: i) why venture capital investments are often syndicated; and ii) what are the effects of syndication on the post-investment involvement of venture capitalists. We analyse a model where a venture capitalist's efficiency to screen an uncertain project depends both on experience and on the signal they can obtain from another specialized investor. Disclosing the existence of the investment project to this second investor is harmful since the latter becomes de facto a potential competitor. We show that this potential competition can only be avoided through syndication, which affects the learning process. We further explore the cost of syndication in terms of investment decisions or post-investment involvement of venture capitalists.
Keywords: competition; learning; syndication; venture capital
JEL Codes: D80; G20; G30
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| syndication (L14) | avoidance of potential competition (L49) |
| need for information gathering (D83) | syndication (L14) |
| experience of VCs (G24) | syndication decisions (L14) |
| inexperienced VCs (G24) | likelihood to syndicate (L14) |
| experienced VCs (G24) | reluctance to syndicate (L14) |
| syndication (L14) | post-investment involvement of VCs (G24) |
| experience of VCs (G24) | effort exerted post-investment (G31) |
| syndication and experience (G24) | post-investment involvement of VCs (G24) |