Network Formation Of Venture Capital Syndicate Based On Investment Diversification

Syndicate is an effective way to increase the success probability and investment income of the project in venture capital industry.So venture capital firms usually syndicate when they invest projects.The venture capital syndicates network is a byproduct of the co-investment activities among the venture capital firms.The research on the mechanism of the venture capital syndication network has some significance,because the structure of the syndicate network affects investment performance.Considering that syndication can increase the success probability and investment income of a project,this paper firstly studies the formation mechanism of local venture capital syndication network using sequential network formation game and analyzes the efficiency and fairness of local equilibrium network structure.Secondly this paper studies the formation mechanism of' trans-regional venture capital syndication network using sequential network formation game.What's more,the validity of' the conclusion is verified by numerical simulation.The conclusions arc as follows。In the local area,the results show that,for a low reputation venture capital firm,it is the best decision to syndicate in high project with a high reputation venture capital firm instead of another low reputation venture capital firm,and for a high reputation venture capital firm,the best decision is to invite all low reputation organizations to syndicate his own high project.Besides,the high reputation venture capital firm will accept an invitation of syndication from a low reputation venture capital firm whose project is high value.Finally,the game results show that a center-sponsored star or a mixed star is a subgame-perfect equilibrium network architecture for local networks.Furthermore,we prove that mixed star equilibrium network architecture is effective under certain conditions and the fairness of this equilibrium network architecture is controllable.When venture capital firms invest across regions,it is the best choice to accept an invitation of syndication from a high reputation venture capital firm instead of a low reputation venture capital firm for a high reputation venture capital finn.However,low reputation venture capital firms choose cross-regional investment only when the present value of future trading flows generated by cross-regional co-investment is large.The research of this paper not only provides theoretical supplement for the research on the formation mechanism of venture capital syndication network,but also provides some suggestions for venture capital firms when they syndicate.