Cross-cultural Liaisons: Syndication Partner Choice by Foreign Venture Capital Firms in China

Cross-border venture capital investing has increased dramatically over the last two decades. Previous research has shown that foreign venture capitalists tend to partner with local venture capitalists as a strategy for offsetting information asymmetries and liabilities of foreignness. This paper examines the choice of co-investors by foreign venture capitalists investing in the Chinese market. We find that foreign investors are more likely to choose Chinese investors in later investment rounds and in more mature portfolio firms. More experienced foreign venture capital firms are less likely to co-invest with Chinese venture capitalists. Also, having a Chinese office made foreign venture capitalists less likely to co-invest. In seed-stage investments, when risks are the greatest, foreign firms are least likely to co-invest with Chinese venture capitalists, while at the later stage, when risks are presumably the lowest is when they are most likely to co-invest. During this period, the propensity to co-invest with Chinese venture capitalists increased significantly in every stage except the seed stage.