Syndication et financement de l'innovation: motif de partage du risque versus expertise

Muriel Dal Pont Legrand and Sophie Pommet

Revue d'économie politique, 2010, vol. 120, issue 4, 643-668

Abstract: Venture capital firms are known as specific financial intermediaries, providing not only funds but also expertise to innovative projects. This paper analyses the consequences venture capital investments syndication for an expertise motive can have on investment decisions and on post-investment involvement of investors. In that perspective, we use the analytical framework provided by the Soft (versus Hard) Budget Constraint literature and more specifically the paper published by Huang and Xu [2003] in which the capacity of syndication for risk diversification to refinance short-run inefficient projects is examined. We develop an extension of that model in order to consider the specificity of syndication for expertise and what could be its impact on investors? refinancing decision. Then, the model discusses the conditions for which syndication for expertise motive may be more profitable for venture capitalists than syndication for a pure risk diversification motive.

Date: 2010
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