Working Papers

The Ups and Downs of Venture Capital Syndication: Determinants and Outcomes
George Bittlingmayer, The University of Kansas; Shane M. Moser, The University of Mississippi

Abstract: Why do venture capitalists syndicate in more than sixty percent of first rounds? Syndication is more likely for larger first rounds, consistent with a diversification motive. Industry and geographic patterns of syndication, as well as variations by stage of the portfolio company, support the view that first-round syndicates also provide vetting, expertise, and networks, and that higher densities of venture capital firms make it easier for syndicates to function. In addition, indicators of lower future returns to venture capital investments are associated with higher rates of syndication, consistent with the use of first-round syndication as a defensive strategy. Empirical evidence further supports this view: first-round syndication of the 1990s, when syndication rates were low and prospects good, is associated with good exit outcomes, while syndication since 2000, when syndication rates were high and prospects poor, is associated with bad exit outcomes.


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