DP3867 Learning and Syndication in Venture Capital Investments
|Author(s):||Catherine Casamatta, Carole Haritchabalet|
|Publication Date:||April 2003|
|Keyword(s):||competition, learning, syndication, venture capital|
|JEL(s):||D80, G20, G30|
|Programme Areas:||Financial Economics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=3867|
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.