The effects of prior co-investments on the performance of venture capitalist syndicates: A relational agency perspective

Research Summary: This study provides a reconciliation of previous findings regarding the effects of prior co-investments among venture capitalists (VCs) and the performance of VC syndicates. We propose a relational agency framework outlining cost–benefit trade-offs associated with prior co-investments between VCs. A longitudinal study of 4,550 U.S. ventures receiving syndicated investments from 1980 to 2017 shows that there exists an inverted U-shaped relationship between the number of prior co-investments and a venture's likelihood of a successful exit through initial public offering or merger and acquisition. We further find that the relationship between prior co-investments and syndicate performance is moderated by venture- and partner-specific risks. Managerial Summary: We study the effects of prior co-investments among venture capital (VC) firms on the performance of VC syndicates. We propose a framework outlining cost–benefit trade-offs associated with prior co-investments between VCs. A study of 4,550 U.S. ventures receiving syndicated investments shows that there exists an inverted U-shaped relationship between the number of prior co-investments and a venture's likelihood of a successful exit through initial public offering or merger and acquisition. Our findings hold implications for managers considering whom to partner with for future co-investments and the conditions under which prior co-investments are more or less likely to be beneficial.