The Evolution of Initial Co-investment Syndications in an Emerging Venture Capital Market

Prior research highlights the importance of co-investments among foreign and domestic investors in an emerging VC market. Yet, the question of how domestic and foreign VC syndicate partners select each other for their initial co-investment remains an open one. The question is important because uncertainty in emerging markets exposes participants to risks associated with higher levels of agency, problems of adverse selection, and potential opportunism. Building on agency theory, we hypothesize and test the risk mitigating effects of economic and social signals on the choice of initial co-investment ties among domestic and foreign VCs in an emerging market. Our work has implications for international management research, the practice of international VC investing, and public policy that tries to stimulate venture driven ecosystems.