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INTRODUCTION

The issue of the syndication of deals by venture capital firms has been relatively little considered in the literature, although it is clearly significant empirically. The Centre for Management Buy–out Research at the University of Nottingham maintains a comprehensive database of all management buy–outs and buy–ins in the United Kingdom, which enables the issue of syndication to be directly examined in detail for this important segment of the venture capital market.

Syndication has been an established part of venture capital markets for many years with increasing maturity of market sometimes being associated with increased syndication (Ooghe et al, 1991). Statistics for the UK venture capital industry (Table 1) show syndication decreasing in the late 1980s, increasing during the recessionary years of 1991/92, but then decreasing again from 1993.

TABLE 1

Syndication of UK Venture Capital Deals (% by number)

1987 1988 1989 1990 1991 1992 1993 1994 1995
None 28.3 51.5 51.6 54.1 40.8 38.0 53.7 53.4 58.3
National 67.5 44.5 42.9 31.2 36.7 42.4 31.1 36.7 30.0
Transnational 4.2 4.4 5.5 14.7 22.5 19.5 15.2 9.9 11.8

Source: EVCA Yearbooks, 1988–1996

Syndication has been seen as a method of sharing knowledge as well as spreading financial risk, although disadvantages may become evident in post transaction monitoring and control should the investee company subsequently perform badly (Wright, Wilson, Robbie and Ennew, 1994).

This paper examines the analytical background to syndication; investigates empirically the extent and determinants of syndication using quantitative and qualitative evidence; and considers the role of networks amongst venture capital firms. The final section suggests some implications for both academic researchers and practitioners.

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