The Impact of Social Interactions on Venture Performance: Empirical Evidence Analyzing the Relationship between Syndicates and Ventures

Abstract

Research about venture capital receives increasing attention in the entrepreneurship literature. It is of no doubt that ventures backed by investors are more successful than others. However, research gaps exist in understanding the importance of investor’s post-investment support and interaction frequency. In addition, the role of syndicates and the influence of certain moderating factors on venture performance remain unclear. Based on a survey of 93 out of 293 venture capital firms in Germany, the author examines the interaction frequency among the investors in a syndicate and between the lead investor and the venture. Additionally, he introduces the lead investor’s involvement in the post-investment process as a moderating variable in our regression model. Results of the regression show that a high interaction frequency between the lead and the non-lead members of a syndicate is essential. When the lead investor provides strategic and operational support, it is important for the lead investor to focus on value-adding activities rather than having frequent interactions with the syndicate members. In contrast, when the lead investor is active in strategic and operational support, it is essential to have a high interaction frequency between the lead investor and the venture. With this empirical analysis, the author expands the current literature on stream of ownership and management and control in alliances by analyzing the relevance of interaction frequency on venture performance and by introducing relevant moderators.

TOPICS: Private equity, in portfolio management, developed, performance measurement