How Does Network Structure Impact Follow-On Financing through Syndication? Evidence from the Renewable Energy Industry

Ruling Zhang, Killian McCarthy, Xiao Wang and Zengrui Tian
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Ruling Zhang: Glorious Sun School of Business and Management, Donghua University, Shanghai 200051, China
Xiao Wang: International Business School Suzhou, Xi’an Jiaotong-Liverpool University, Suzhou 215123, China
Zengrui Tian: Glorious Sun School of Business and Management, Donghua University, Shanghai 200051, China

Sustainability, 2021, vol. 13, issue 7, 1-23

Abstract: Venture capital (VC) is a critical source of finance for renewable energy ventures. Importantly, VC investments are made in rounds. In higher rounds: (1) the availability of capital drops—we find that less than 50% of renewable energy ventures receive “follow-on” financing—and (2) the rate at which VC firms co-invest increases—we find that 75% of “follow-on” investments are “syndicated”, co-investments. We argue that the way in which VC firms co-invest—in terms of how and to whom they are connected—is critical to understanding which projects are financed. Using data on 760 firm-deal observations, we examine how the VC firm’s direct ties (ego network) create trust (which we measure using the clustering coefficient) and improve access (structural holes) to important investment information. We consider too how the “small-world” nature of the global VC industry network (small-world quotient) improves “information reachability”. Finally, we consider the way in which these features interact with each other—specifically, when they can be substitutes and when they are complements—in explaining which projects do and do not receive follow-on financing through syndication. We conclude by reflecting on the implications of our findings for VC syndication and sustainable entrepreneurship in the renewable energy industry.

Keywords: venture capital; syndication; syndication network; follow-on financing; sustainable entrepreneurship; renewable energy finance; Chinese renewable energy industry (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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