Syndication in venture capital

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Helsinki University of Technology, Department of Industrial Engineering and Management doctoral dissertation series, 2009/5
The syndication of investments is a prevalent and distinctive feature of the venture capital (VC) industry. Motivated by its benefits for the performance of both VC firms and their portfolio companies, active co-operation within and across syndicates creates a multi-layered phenomenon. While prior research has devoted a considerable amount of attention to the topic, significant gaps and areas for contributions remain. This dissertation addresses syndication in venture capital using two complementary approaches. On the one hand, the first paper of the dissertation reviews the extant research to generate an understanding of the state of the existing knowledge and its limits. On the other hand, the dissertation addresses three specific research questions targeting each of the three main levels of syndication. On the deal level, it examines the structuring of profit distribution when the syndicated investment is a venture capital fund. On the VC firm level, it addresses the effects of syndication by examining the optimal portfolio size of VCs and how it is affected by the use of syndication. Finally, on the network level, the dissertation investigates how networks of VC firms, formed through syndicated investments, distribute information on the investment targets and facilitate exits to non-domestic markets. The results of the articles contribute to the research on venture capital and provide insights for policies regarding new venture financing. The conclusions of the literature review demonstrate a lack of understanding of the strategic dimensions of syndication. Accordingly, the results concerning the firm- and network-level effects suggest that the strategic use of syndication and positioning within co-operation networks enhance the performance of VCs and increase opportunities for successful exits. From the policy perspective, the results demonstrate that while the opportunities to attract private sector actors to markets with severe performance gaps using profit distribution are limited, the facilitation of cross-border investments improves the functioning of domestic markets.
venture capital, syndication
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  • [Publication 1]: Mikko Jääskeläinen. 2009. Venture capital syndication: synthesis and future directions. Espoo, Finland. 42 pages. Helsinki University of Technology, Department of Industrial Engineering and Management, Report 2009/1. © 2009 by author.
  • [Publication 2]: Mikko Jääskeläinen, Markku Maula, and Gordon Murray. 2007. Profit distribution and compensation structures in publicly and privately funded hybrid venture capital funds. Research Policy, volume 36, number 7, pages 913-929. © 2007 by authors and © 2007 Elsevier Science. By permission.
  • [Publication 3]: Mikko Jääskeläinen, Markku Maula, and Tuukka Seppä. 2006. Allocation of attention to portfolio companies and the performance of venture capital firms. Entrepreneurship Theory and Practice, volume 30, number 2, pages 185-206.
  • [Publication 4]: Mikko Jääskeläinen and Markku Maula. 2009. Do networks of financial intermediaries help reduce local bias? Evidence from cross-border venture capital. Espoo, Finland. 39 pages. Helsinki University of Technology, Department of Industrial Engineering and Management, Report 2009/2. © 2009 by authors.