סמינר באסטרטגיה

Dan Aks, Faculty of Management, Tel Aviv University.

Abstract: 

This paper analyzes the impact of capital inflows into the venture capitals (VCs) industry on the VCs syndication patterns. 

Using a dataset on essentially all Israeli VC-backed firms and all VC funds that invested in Israel from 1996 to 2007, this paper shows that reciprocity is a strong motivation for syndication between funds, i.e., funds invite other funds to invest in their most promising firms, in the expectation that the invited funds will return the favor in the future. 

In “hot periods” (high capital inflow periods) higher number of funds enter the market, and the competition to finance a limited number of promising firms increases. 

This has, in turn, a negative impact on the funds' reciprocity motivation to originate syndications. 

Therefore, strong firms that were established in hot periods are less likely to be syndicated and to turn into successful exits. 

To this extant, this paper suggests an explanation for the poor performance of funds established in hot periods