To Go Solo or To Syndicate: Determinants of Tie Formation in The U.S. Venture Capital Industry

Despite the importance of investment syndicates for the Venture Capital (VC) industry to function, surprisingly little is known about the motives for syndication. In this study, I build on Entrepreneurial Finance studies that present uncertainty and risk associated with the investment as the main drivers of syndication. I then examine two important but less emphasized factors that affect syndication strategies: characteristics of the social structure and position of the actor in the social structure. I conceptualize the VC industry syndication network as a social exchange network and argue that actors accumulate social debts and assets as they receive syndicate invitations and initiate syndicates. From this, I primarily claim that the syndication history of a VC firm as well as the balance of his accumulated social liabilities and assets affects the likelihood of initiating syndicates. By analyzing syndication patterns in the US VC industry from early 1970s until 2004, I show that VC firms with net social liabilities, that is, VC firms that have received more syndicate invitations than they have initiated, are more likely to initiate a syndicate.