Venture Capitalists’ Decision to Syndicate Sophie Manigart Andy Lockett Miguel Meuleman Mike Wright Hans Landström Hans Bruining Philippe Desbrières Ulrich Hommel Financial theory, access to deal flow, selection, and monitoring skills are used to explain syndication in venture capital firms in six European countries. In contrast with U.S. findings, portfolio management motives are more important for syndication than individual deal management motives. Risk sharing, portfolio diversification, and access to larger deals are more important than selection and monitoring of deals. This holds for later stage and for early stage investors. Value adding is a stronger motive for syndication for early stage investors than for later stage investors, however. Nonlead investors join syndicates for the selection and value-adding skills of the syndicate partners. Introduction Venture capital (VC) firms invest in companies that have high growth potential.They have developed various strategies to deal with this high-risk environment, one of which is the syndication of investments (Wright & Robbie, 1998). An equity syndicate involves two or more VC firms taking an equity stake in an investment for a joint payoff (Wilson, 1968), either in the same investment round or, more broadly defined, at different points in time (Brander, Amit, & Antweiler, 2002). Syndication is common in the VC industry, both in North America and in Europe. The statistics of the European Venture Capital Association (EVCA) (2002) show that almost 30% of the value invested by European VCs and of the number of deals were syndicated in 2001. Despite its importance in the VC sector, surprisingly little is known about the motives for syndication. VC firms will only invest if they believe the potential return adequately compensates for the investment risk. Why, then, do VC firms give up potential return by not investing the whole amount needed by the portfolio company, but rather seek another VC firm to coinvest and thereby share in the potential gains (or losses)? This Please send to correspondence to: Sophie Manigart, e-mail: sophie.manigart@rug.ac.be at Kuiperskaai 55E, B-9000 Ghent, Belgium. P T E & 1042-2587 © 2006 by Baylor University 131 March, 2006