What Drives Venture Capital Syndication?

Using a sample of 1,485 funded firms in Germany, we analyze the driving forces of VC syndication and try to disentangle the circumstances under which VCs engage in collaboration with partners. The results indicate that syndication is more pronounced for younger funded firms. For firms where products are far from commercialization, the risks that investors face are more. With respect to disentangling the role of diversification and managerial resource motives we analyze the impact of syndication activities on the industry concentration in VC portfolios. The results indicate that (all else equal) more syndication leads to more pronounced concentration on certain industries. These findings are in line with the argument that VCs involve partners to lever upon their idiosyncratic skills and knowledge to either improve deal selection and/or provide a better quality of managerial advice to the funded firm rather than simply using syndication to diversify portfolios