Joint Investment In The Venture Capital Research

Recently, the venture capital industry has grown dramatically in China. Syndication is a popular phenomenon in the industry. However, domestic research on syndication is seldom done.This paper mainly answers two questions. Why and why not syndication? To syndicate is not only to diminish the risk, but also to achieve great benefit if things go well. The reason for no syndication is that venture capitalists are concerned with decreasing efficiency of investment because of the transaction costs and other issues brought by added participators. Herein, the core of this paper is to improve the efficiency of syndication in venture capital investments.Firstly, this paper introduces the definition of syndication and its'nuclear fusion'effect, gives a new explanation by the analysis of experience curve and synergy. Then this paper outlines the motives of syndication from four aspects, the traditional finance /risk sharing perspective, the resource based/risk reduction perspective, deal flow and the corporate strategy perspective.Secondly, this paper analyzes the issues that affect the efficiency of syndication. The issues are the adventure selection, moral hazard and decision timing problem. Moreover, it sheds light on the free rider problems. Then it proposes some suggestions to solve these issues respectively, such as signaling mechanism, screen mechanism and incentive mechanism. It is proved that good reputation and broad network can improve the efficiency of syndication. This paper puts emphasis on: the free-rider both in value-added and monitoring activities, puts forward that the arrangement of equity can incent the non-lead experienced venture capitalists and mitigate their motivation of free rider, suggests letting syndicators take turns to be the dealer to solve the free rider problem in monitoring activities. To improve the decision efficiency in syndication, the design of control right and informal restraint are very important. Finally a related case is presented.In a word, this paper is an attempt to focus on syndication in venture capital investments theoretically and hope to provide several references for venture capital firms and other further researchers.