Syndication in Venture Capital Investment in India: An Empirical Study

Sarita Mishra and Dinabandhu Bag

Journal of Entrepreneurship and Innovation in Emerging Economies, 2017, vol. 3, issue 2, 81-90

Abstract: Abstract Indian economy witnessed high inflow of capital for start-ups in current fiscal year through venture capital (VC) investment. From different Indian VC deals, it is evident that VC investors prefer to invest jointly. In other words, joint investment or co-investment or syndication is a common trend in Indian VC industry. VCs adopt this strategy to minimise their future uncertainties as a part of the control mechanism. In this study, an attempt is made to find out different determinants of this syndication strategy. The samples taken in this study are retrieved from Venture Intelligence database for the period 2005–2014. The data are analysed through linear regression and binomial logistic regression. Two empirical models have been developed. The derived models validate different control variables and deal with specific characteristics to comprehend the rationale of syndication mechanism. The findings of the study indicate that the past experience and the number of industry exposure of a VC in IT and ITES industry are the major predictors for a syndication decision. Subsequently, the precautionary investment attributes like number of investment round, stage funding, etc. draw the interest of potential co-investors in a syndicated deal. Syndication mechanism benefits the VC investors through sharing of risk of investment in a start-up and preparing them for a successful exit. Extant literature supports the results as Indian VC investors prefer to share the risk profile of a start-up business and adopt different risk diversion mechanisms to attract co-investors in the deal. Furthermore, the joint investment by investors drag more funding amount and also create more human capital for efficient management of the investment in VC-backed portfolio.

Keywords: VC investment; VC syndication; risk sharing (search for similar items in EconPapers)
Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:sae:jouent:v:3:y:2017:i:2:p:81-90

DOI: 10.1177/2393957517700943

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