Gain or Pain? New Evidence on Mixed Syndication Between Governmental and Private Venture Capital Firms in China

Abstract

I investigate the performance of mixed syndication involving both governmental and private venture capital firms (GVCs and PVCs) in the context of China. Using the data on the investments in start-ups between 1999 and 2011, I find that start-ups backed by mixed syndication in their initial financing round are less likely to receive refinancing, compared to those backed by syndication solely among PVCs. I present evidence consistent with two possible mechanisms in explaining the underperformance of firms backed by mixed syndication: a potentially lower quality of portfolio companies due to the distorted risk premium, and less complementary resources but higher coordination cost in mixed syndication. The empirical results continue to hold when I use instrument variable method, propensity score matching analysis, Heckman treatment method, and endogenous switching regressions in mitigating the potential selection bias and endogeneity problems.

Keywords: Venture capital; Syndication; Networking; China

JEL Classification: G24