Peer Monitoring, Syndication, and the Dynamics of Venture Capital Interactions: Theory and Evidence

Onur Bayar, Thomas Chemmanur and Xuan Tian

Journal of Financial and Quantitative Analysis, 2020, vol. 55, issue 6, 1875-1914

Abstract: We develop a theoretical model providing a new rationale for venture capitalist (VC) syndicate formation and empirically test our model predictions. An entrepreneur obtains financing and two different value-adding inputs from a single VC or from two different VCs, each operating in his area of expertise. We characterize the entrepreneur’s equilibrium choice between contracting with a single VC, individually with multiple VCs, or with a VC syndicate. We show that syndicates mitigate VCs’ moral hazard problem in value addition. We also analyze the dynamics of VC syndicate composition. The results of our empirical analysis are consistent with our model’s predictions.

Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:cup:jfinqa:v:55:y:2020:i:6:p:1875-1914_4

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