Performance Implications of Venture Capital Syndication Networks

Denis Trapido

in The Oxford Handbook of Venture Capital

Published in print April 2012 | ISBN: 9780195391596
Published online September 2012 | | DOI:

Series: Oxford Handbooks

 Performance Implications of Venture Capital Syndication Networks

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This article considers the performance implications of venture capital syndication networks. First, it reviews theories of functions of syndication networks. Each of these theories suggests a way that networks help venture investors access better-performing investment targets or better manage them. The four functions that can be examined with the data used in this article—trust generation, preventing abuse of information asymmetries, sharing of management experience, and sharing of risk evaluation expertise—are discussed in detail. Next, it constructs measures of these four functions and uses them to describe the evolution of the venture capital (VC) syndication networks in the United States. This description focuses on the role of VC networks in and after the venture investment boom that peaked in 2000. Finally, it examines the effect of the four functions on the performance of venture investment recipients. As the performance of VC investors is determined by that of their investment recipients, the conclusions of this analysis extend to the performance of VC investors. The concluding section discusses the implications of the results for the sustainability of VC's role in nurturing cutting-edge, breakthrough technologies.

Keywords: venture capital syndication networks; venture capital investors; trust generation; information asymmetry abuse; management experience sharing; risk evaluation

Article.  6697 words. 

Subjects: Economics ; Financial Markets

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