Syndication Strategies of Venture Capital and Private Equity Firms in India—An Empirical Investigation

Abstract

This article explores the factors affecting the syndication strategies of Indian Venture Capital and Private Equity (VCPE) firms. Analysis of 5,399 VCPE investment deals from 1998 to 2016 shows that firms’ preferences to syndicate are significantly affected by the characteristics of the VCPE firms, the investee firms, and the agreement itself. More specifically, experience and ownership (foreign vs. domestic) of the VCPE firm, age and industry of the investee firm, and size and stage of the investment deal influence the syndication preferences, reflecting the finance and resource motives for syndication. Our empirical analysis shows that younger VCPE firms and those with domestic investors may have a resource motive for syndication, preferring to manage the high market and technological risks associated with VCPE investing through syndication. In addition, to tackle information asymmetry, Indian VCPE firms are likely to syndicate when they invest in younger companies and those with high innovation and technology quotients. Similarly, VCPE firms reveal evidence of the financial motive for syndication. They strategize to diversify risks when the investment size is large or the stage of the investment deal is early.