The Effects of Prior Co-Investments on the Performance of VC Syndicates: A Relational Agency Perspective

Abstract

This study provides a reconciliation of previous findings regarding the effects of prior co-investments among venture capitalists (VCs) and the performance of VC syndicates. We propose a relational agency framework outlining cost-benefit trade-offs associated with prior co-investments between VCs. A longitudinal study of 4,550 U.S. ventures receiving syndicated investments from 1980 to 2017 shows that there exists an inverted U-shaped relationship between the number of prior co-investments and a venture’s likelihood of a successful exit through initial public offering or merger and acquisition. We further find that the relationship between prior co-investments and syndicate performance is moderated by venture-specific and partner-specific risks.

Keywords: entrepreneurial finance, venture capital, syndication, prior co-investments, performance

JEL Classification: M13