On the syndication between the private and public venture capitalists
Finance Seminar by Yan Alperovych (EM Lyon)
November 2018, Wednesday 14 (1:00 pm) - N1 – Room 1701
There is ample evidence that Governmental Venture Capital (GVC) funds exert a negligible role on the performance of target ventures, except when they syndicate with private Venture Capital (PVC) investors. Yet, the origination of PVC-GVC syndicates still received no academic attention. Interestingly, very often lead PVC investors decide to invite GVC in their syndicate. In this paper we study the reasons why PVC would chose to do so. While most of the motivations for syndication highlighted by existing literature do not seem to explain the choice of PVC to syndicate with a GVC, we identify three motivations that instead could be relevant. PVC investors could decide to partner up with GVC to i) build a track record, if they do not have one, 2) to diversify their portoflio and invest outside of their industry “comfort zone”, and 3) to invest in risky opportunities, exploiting GVC as a way to lower the exposure to the venture’s risk. We provide evidence on these three causes for syndication with GVC based on a unique international sample of syndicates in which PVC is the lead investor. We show that less experienced PVC investing in industries where they are less comfortable are more likely to invite a GVC partner. In first rounds, also the industry riskiness seems to motivate such choice. We also show that PVC that in the first years of their life partner up with GVC more often, later are able to build a track record faster, and syndicate more with other PVC. Interesting differences emerge across geographical locations: the track record argument is more strongly supported in Europe, while the comfort zone argument effect is driven by US-based syndicates. This result suggests that GVC has a role in the development of VC markets, but such role is different in different economies.