Motivating Factors And Performance For Syndication Of Venture Capital Industry In China

In the past ten years, China’s economy developed rapidly and kept ahigh growth rate. Small and medium sized enterprises are an importantpart of China’s economy and also one of the significant driving forces.There is a great relationship between the development of small andmedium sized enterprises and the prosperity of Venture Capital industry.Venture capital industry of China began in the1980s, and has experiencedgreat development for the last ten years both in amount of investment,number of projects and capital raised. Thanks to this development,academia has taken great interested in this field, making the number ofresearch results increase greatly. As an effective investment strategy,syndication is hotly discussed and debated by experts and professors.Syndication was born simultaneously with Venture Capital industryand has been getting more and more popular these days. This paper takesthe syndication of Venture Capital industry of China as the breakthroughpoint, chooses4740pieces of investment data from the beginning of1993to the end of2011as research materials, uses econometric model toexplore the motivating factors, performance and level of syndication, andespecially to show the “Chinese characteristics” under the unique Chineselaw, system and culture background, which move the predecessor’sresearch further. Based on the review of the previous studies on the basisof literature, combined with China’s special law, system, culturebackground, this paper proposes12hypotheses related to the motivatingfactors and performance of syndication, and establishes multiple modelsto discuss key points. Through the use of Logit regressions, we getempirical research results. In addition, this paper also defines the level ofsyndication, which means the number of VC firms in syndication, andbelieves that independent investment is equivalent to that the level equals 1while syndication is equivalent to that the level is greater than1.ThenOrdinal regression is used to draw conclusions.The main conclusions are as follows: in terms of motivating factorsfor syndication, we find that the scales of financing, the experiences ofVC firms and investing in high-tech industry have positive influences onsyndication decision. Moreover, foreign VC firms and VC firms withoutgovernmental background are more likely to participate in syndication. Interms of performance, syndicated VC firms perform better thanindependent ones while there are no obvious differences between theperformances of foreign and domestic VC firms. When it comes to thelevel of syndication, we find that the financing size, financing rounds, VCfirm scales, professionals, nationalities and locations, the industries,locations of invested companies all have significant influences on it. Allof them have positive impact except financing size and professionals.This model also provides a way to determine the best number of partnersof syndication.