The interplay of need and opportunity in venture capital investment syndication

This study examines the syndication of investments novel to a VC firm as a function of the firm's need and opportunity to do so. We distinguish two types of uncertainty that firms face when considering novel investments: egocentric, pertaining to making the right decisions, and altercentric, pertaining to being evaluated as a potential partner on the investment. Whereas the former increases the firm's need to syndicate the investment, the latter reduces the firm's opportunity to do so, making it contingent upon the firm's status and reputation for attracting potential partners. Using data on first-round venture capital investments, we find that novel investments are more likely to be syndicated. Moreover, this relationship is stronger for firms with higher status and weaker for firms with higher reputation. These results highlight a relational aspect of uncertainty, inherent in a particular VC firm — investment dyad, and suggest that status and reputation play different roles in aligning the need and opportunity to syndicate novel investments.