Informational Hold-up by Venture Capital Syndicates

An internal seminar was hold by the Finance Economics and Econometrics Lab on november 18, 2021. It gave our researchers the opportunity to discuss the paper on Informational Hold-up by Venture Capital Syndicates written by Pierre Mella-Barral (TBS Education) and Suting Hong (ShanghaiTech) in september 2021.

Pierre Mella-Barral, professor of finance at TBS Education, was the keynote speaker at this seminar.

We develop a theory of informational hold-up by lending VC syndicates, in the spirit of Sharpe (1990) and Rajan (1992). The theory can explain and relate the empirical observations that (a) early round syndicates regularly associate VCs with different levels of experience and (b) follow-on syndicates often involve none of the early round VCs. Consistent with the theory, we find empirically that the heterogeneity of VC experience levels in a syndicate is (i) negatively related to the extent to which outside VCs trust in the entrepreneur and (ii) positively related to the likelihood of syndicate switching in a later round.

Pierre Mella-Barral