The Structure and Management of Alliances: Syndication in the Venture Capital Industry

30 Pages Posted: 29 Dec 2003

See all articles by Mike Wright

Mike Wright

Nottingham University Business School

Andy Lockett

Nottingham University Business School (NUBS)

Abstract

Syndicates are a form of inter-firm alliance in which two or more venture capital firms co-invest in an investee firm and share a joint pay-off. Syndication is a significant part of the venture capital market yet little research has been conducted into the process of structuring syndicate deals and the management of syndicates following deal completion. This paper analyses the neglected issues concerning the structuring and management of syndicated venture capital investments from the perspectives of both lead and non-lead syndicate members using two surveys of venture capital firms and examination of syndication documents. Lead investors typically have larger equity stakes and the syndicated investment agreement is a document that enshrines the rights of participants rather than specifying behaviour. Contractual arrangements typically serve as a back drop to relationships as non-legal sanctions are important and decisions are typically reached following discussion and consensus, but lead venture capital investors' residual and specific powers are important in ensuring timely decision-making. The findings extend previous work on alliances by emphasizing the importance of non-legal sanctions, especially reputation effects, in mitigating opportunistic behaviour by dominant equity holders. The paper also adds to the limited research on the dynamics of alliances by highlighting the role of repeat syndicates.

Suggested Citation

Wright, Mike and Lockett, Andy, The Structure and Management of Alliances: Syndication in the Venture Capital Industry. Available at SSRN: https://ssrn.com/abstract=467754

Mike Wright (Contact Author)

Nottingham University Business School ( email )

Jubilee Campus
Wollaton Road
Nottingham, NG8 1BB
United Kingdom
+44 115 951 5257 (Phone)
+44 115 951 5204 (Fax)

Andy Lockett

Nottingham University Business School (NUBS) ( email )

Jubilee Campus
Wollaton Road
Nottingham, NG8 1BB
United Kingdom

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