Market Reputation, Innovation or Synergistic Partnerships, and Syndication Activities within Venture Capital Markets

Absent superior performance with respect to 'Portfolio Innovation Focus' (unexpected innovation), this study finds 'less experienced' ('competing') VCs, which only coinvest with other less experienced VCs, become less reputable than alternate less experienced ('non-competing') VCs who coinvest with experienced VCs. The empirical evidence demonstrates innovation focus of non-competing VCs' syndicates are premised on demand for expertise of experienced VCs, and not influenced by syndicate size. Consistent with network size rationales for syndication, quid-pro-quo benefits of syndicate size enhance innovation focus within syndicates comprising of competing VCs. Applications of the single crossing property provide empirical evidence that differences between portfolios of non-competing and competing VCs are compatible with existence of Nash equilibriums, and heterogeneity in preferences. This study is first to empirically dichotomize and demonstrate coexistence of 'expertise' and 'quid-pro-quo' rationales for syndication in context of populations of cohort VCs operating within venture capital markets