Moral Hazard in VC Syndicates

Syndicates are good but not always. A number of studies have looked into the benefits of syndication and enumerated the various factors that lead to the positive outcome. There are few studies that allude to the negative side of syndication. Adding to the latter string of papers, this paper analyzes the interaction among VC partners using partnership model and derives conditions that lead to inferior performance of the venture funded by the syndicate. Syndications with large number of partners, entering the later rounds of financing, already overseeing big portfolio of investments do not add expected value to the ventures and render rather inferior performance. The empirical findings support the theoretical claims