Browse > Article
http://dx.doi.org/10.7545/ajip.2018.7.1.150

Managing Information Asymmetry Risks Using Deal Syndication and Domain Specialization: An Indian Context  

Joshi, Kshitija (National Institute of Advanced Studies, Indian Institute of Science Campus)
Publication Information
Asian Journal of Innovation and Policy / v.7, no.1, 2018 , pp. 150-177 More about this Journal
Abstract
We review two specific risk management strategies of venture capitalists (VCs): deal syndication and domain specialization with respect to their explicit role in adjudging and managing the overall magnitude of information asymmetry risks. These are analyzed for three distinct categories of VC firms as classified by their funding stage focus (early vs. late), ownership type (foreign vs. domestic) and the human capital composition of the core VC team (entrepreneurial vs. investor). The analysis is based on both secondary data and primary data for active 72 VC firms in India. Syndication is moderately important for entrepreneurial VC firms, but not at all important for early-stage focused and foreign VC firms. This finding is distinctly different from what has been conventionally observed in the literature. Among the various arenas of domain specialization, high-technology focus is important for all segments of VC firms. In the context of investment-stage focus, foreign VC firms exhibit growth-stage specialization, while entrepreneurial VC firms concentrate on earlier investment stages.
Keywords
Venture capital; domain specialization; syndication; entrepreneurial VC; foreign VC; early-stage VC;
Citations & Related Records
Times Cited By KSCI : 1  (Citation Analysis)
연도 인용수 순위
1 Newbert, S.L. (2007) Empirical research on the resource-based view of the firm: an assessment and suggestions for future research, Strategic Management Journal, 28(2), 121-146.   DOI
2 Nitani, M. and Riding, A. (2013) Fund size and the syndication of venture capital investments, Venture Capital, 15(1), 53-75.   DOI
3 Norton, E. and Tenenbaum, B.H. (1993) Specialization versus diversification as a venture capital investment strategy, Journal of Business Venturing, 8(5), 431-442.   DOI
4 Panda, S. and Dash, S. (2016) Exploring the venture capitalist-entrepreneur relationship: evidence from India, Journal of Small Business and Enterprise Development, 23(1), 64-89.   DOI
5 Patzelt, H., ZuKnyphausen-AufseB, D. and Fischer, H.T. (2009) Upper echelons and portfolio strategies of venture capital firms, Journal of Business Venturing, 24(6), 558-572.   DOI
6 Peteraf, M.A. (1993) The cornerstones of competitive advantage: a resource-based view, Strategic Management Journal, 14(3), 179-191.   DOI
7 Pullen, J.P. (2013) Emerging tech: 9 international start-up hubs to watch, Entrepreneur, May 7, USA: Business Daily.
8 Pruthi, S., Wright, M. and Lockett, A. (2003) Do foreign and domestic venture capital firms differ in their monitoring of investees?. Asia Pacific Journal of Management, 20(2), 175-204.   DOI
9 Lerner, J. (1994) The syndication of venture capital investments, Financial Management, 16-27.
10 Ruhnka, J.C. and Young, J.E. (1987) A venture capital model of the development process for new ventures, Journal of Business Venturing, 2(2), 167-184.   DOI
11 Ruhnka, J.C. and Young, J.E. (1991) Some hypotheses about risk in venture capital investing, Journal of Business Venturing, 6(2), 115-133.   DOI
12 SEBI (2013) Handbook of Statistics on Indian Securities Markets, Http://www.sebi.gov.in/sebiweb/home/list/4/32/0/0/Handbook-of-Statistics
13 Sah, R.K. and Stiglitz, J.E. (1984) The architecture of economic systems: hierarchies and polyarchies, W1334, National Bureau of Economic Research.
14 Sapienza, H.J., Manigart, S. and Vermeir, W. (1996) Venture capitalist governance and value added in four countries, Journal of Business Venturing, 11(6), 439-469.   DOI
15 Saxenian, A. (2010) Local and Global Networks of Immigrant Professionals in Silicon Valley, San Francisco, CA: Public Policy Institute of California.
16 Schertler, A. and Tykvova, T. (2011) Venture capital and internationalization, International Business Review, 20(4), 423-439.   DOI
17 SEBI (2006) Foreign Venture Capital Investors, Amendment Regulations 2006, www.sebi.gov.in
18 Seed Table (2014) Analyzing Startups Worldwide, Http://www.seedtable.com/
19 Sorenson, O. and Stuart, T.E. (2001) Syndication networks and the spatial distribution of venture capital investments1, American Journal of Sociology, 106(6), 1546-1588.   DOI
20 Teece, D.J., Pisano, G. and Shuen, A. (1997) Dynamic capabilities and strategic management, Strategic Management Journal, 509-533.
21 Thornhill, S. (2006) Knowledge, innovation and firm performance in high-and low-technology regimes, Journal of Business Venturing, 21(5), 687-703.   DOI
22 Venture Intelligence (2014) Database on Private Company Financials, Transactions and Valuations for India, Http://www.ventureintelligence.com
23 Wright, M. and Lockett, A. (2003) The structure and management of alliances: syndication in the venture capital industry, Journal of Management Studies, 40(8), 2073-2102.   DOI
24 Bain and Company (2012, 2013 and 2014) India Private Equity Report, Http://www.bain.com
25 Agarwal, A. (2011) Investing in an Indian startup: FDI or VC - which is the better route?, Blog of headstart.in - the largest network of early stage startups in India, Http://headstart.in/2011/01/17/investing-in-an-indian-startup-fdi-or-vc-which-is-the-better-route/
26 Bala Subrahmanya, M.H. (2015) New generation start-ups in India, Economic and Political Weekly, 50(12), 57.
27 Bala Subrahmanya, M.H. (2017) Comparing the entrepreneurial ecosystems for technology startups in Bangalore and Hyderabad, India, Technology Innovation Management Review, 7(7), 47-62.
28 Barney, J., Wright, M. and Ketchen, D.J. (2001) The resource-based view of the firm: ten years after 1991, Journal of Management, 27(6), 625-641.   DOI
29 Barry, C.B. (1994) New directions in research on venture capital finance, Financial Management, 3-15.
30 Brander, J.A., Amit, R. and Antweiler, W. (2002) Venture‐capital syndication: improved venture selection vs the value‐added hypothesis, Journal of Economics and Management Strategy, 11(3), 423-452.   DOI
31 Bruining, H. and Wright, M. (2002) Entrepreneurial orientation in management buy- outs and the contribution of venture capital, Venture Capital: An International, Journal of Entrepreneurial Finance, 4(2), 147-168.   DOI
32 DeClercq, D. and Arenius, P. (2006) The role of knowledge in business start-up activity, International Small Business Journal, 24(4), 339-358.   DOI
33 Casamatta, C. and Haritchabalet, C. (2007) Experience, screening and syndication in venture capital investments, Journal of Financial Intermediation, 16(3), 368-398.   DOI
34 Centre for Internet and Society (2017) Https://cis-india.org/internet-governance/blog/technology-business-incubators.pdf
35 Cumming, D.J. (2006) The determinants of venture capital portfolio size: empirical evidence, Journal of Business, 79, 1083-1126.   DOI
36 Dai, N., Jo, H. and Kassicieh, S. (2012) Cross-border venture capital investments in Asia: selection and exit performance, Journal of Business Venturing, 27(6), 666-684.   DOI
37 David, Z. and Changgui, C. (1995) China's Brain Erain to the United States: The Views of Overseas Students and Scholars in the 1990s, Institute of East Asian Studies, University of California, Berkeley, Center for Chinese Studies.
38 DeClercq, D. and Dimov, D. (2004) Explaining venture capital firms' syndication behaviour: a longitudinal study, Venture Capital: An International Journal of Entrepreneurial Finance, 6(4), 243-256.   DOI
39 Devigne, D., Vanacker, T., Manigart, S. and Paeleman, I. (2013) The role of domestic and cross-border venture capital investors in the growth of portfolio companies, Small Business Economics, 40(3), 553-573.   DOI
40 Dimov, D. and DeClercq, D. (2006) Venture capital investment strategy and portfolio failure rate: a longitudinal study, Entrepreneurship Theory and Practice, 30(2), 207-223.   DOI
41 Ernst and Young (2014) Adapting and Evolving - Global VC Insights, Http://www.ey.com
42 Wright, M., Pruthi, S. and Lockett, A. (2005) International venture capital research: from cross‐country comparisons to crossing borders, International Journal of Management Reviews, 7(3), 135-165.   DOI
43 Zarutskie, R. (2010) The role of top management team human capital in venture capital markets: evidence from first-time funds, Journal of Business Venturing, 25(1), 155-172.   DOI
44 Dimov, D. and Milanov, H. (2010) The interplay of need and opportunity in venture capital investment syndication, Journal of Business Venturing, 25(4), 331-348.   DOI
45 Dossani, R. and Kenney, M. (2002) Creating an environment for venture capital in India, World Development, 30(2), 227-253.   DOI
46 Eisenmann, T.R. (2006) Internet companies' growth strategies: determinants of investment intensity and long‐term performance, Strategic Management Journal, 27(12), 1183-1204.   DOI
47 Gupta, A.K. and Sapienza, H.J. (1992) Determinants of venture capital firms' preferences regarding the industry diversity and geographic scope of their investments, Journal of Business Venturing, 7(5), 347-362.   DOI
48 Gompers, P.A. (1996) Grandstanding in the venture capital industry, Journal of Financial economics, 42(1), 133-156.   DOI
49 Gompers, P.A. and Lerner, J. (2004) The Venture Capital Cycle, MIT press.
50 Gompers, P., Kovner, A. and Lerner, J. (2009) Specialization and success: evidence from venture capital, Journal of Economics and Management Strategy, 18(3), 817-844.   DOI
51 Hall, J. and Hofer, C.W. (1993) Venture capitalists' decision criteria in new venture evaluation, Journal of Business Venturing, 8(1), 25-42.   DOI
52 Hochberg, Y.V., Ljungqvist, A. and Lu, Y. (2010) Networking as a barrier to entry and the competitive supply of venture capital, Journal of Finance, 65(3), 829-859   DOI
53 Joshi, K. and Bala Subrahmanya, M.H. (2015) Information asymmetry risks in venture capital investments: strategies of transnational venture capital firms in India, South Asian Journal of Management, 22(2), 36.
54 Hopp, C. and Rieder, F. (2008) What drives venture capital syndication?, Applied Economics, Forthcoming.
55 Jaaskelainen, M. (2012) Venture capital syndication: synthesis and future directions, International Journal of Management Reviews, 14(4), 444-463.   DOI
56 Joshi, K.A. and Bala Subrahmanya, M.H. (2014) What drives venture capital fundraising in India: an empirical analysis of systematic and non-systematic factors, In Management of Innovation and Technology (ICMIT), 2014 IEEE International Conference on (35-40).
57 Livemint (2017) Http://www.livemint.com/Companies/Dz4dlbQ6W0s4sR8KKJcvfK/Three-Paytm-investors-sell-43-stake-to-Alibaba.html
58 Joshi, K. and Satyanarayana, K. (2014) What ecosystem factors impact the growth of high-tech start-ups in India?, Asian Journal of Innovation and Policy, 3(2), 216-244.   DOI
59 Joshi, K. (2015) Economics of venture capital industry in India: an analysis of the macro ecosystem and micro decision making, unpublished Ph.D thesis, Bangalore, India: Department of Management Studies, Indian Institute of Science.
60 Jungwirth, C. and Moog, P. (2004) Selection and support strategies in venture capital financing: high-tech or low-tech, hands-off or hands-on?, Venture Capital, 6(2-3), 105-123.   DOI
61 Livemint (2010) Http://www.livemint.com/Home-Page/PMFVDiJb1ktHAgHS6Ik7jO/ICICI-VentureSubhiksha-stake-8216written-off8217.html
62 Meuleman, M., Amess, K., Wright, M. and Scholes, L. (2009) Agency, strategic entrepreneurship and the performance of private equity-backed buyouts, Entrepreneurship Theory and Practice, 33(1), 213-239.   DOI
63 Lockett, A., Wright, M., Sapienza, H. and Pruthi, S. (2002) Venture capital investors, valuation and information: a comparative study of the US, Hong Kong, India and Singapore, Venture Capital: An International Journal of Entrepreneurial Finance, 4(3), 237-252.   DOI
64 Madhavan, R. and Iriyama, A. (2009) Understanding global flows of venture capital: human networks as the "carrier wave" of globalization, Journal of International Business Studies, 40(8), 1241-1259.   DOI
65 Manigart, S., Lockett, A., Meuleman, M., Wright, M., Landström, H., Bruining, H. and Hommel, U. (2006) Venture capitalists' decision to syndicate, Entrepreneurship Theory and Practice, 30(2), 131-153.   DOI