The First Deal Might Be The Last: Building Long Term Relationships InThe Venture Capital Community

摘要

Previous analysis of venture capital activity in Silicon Valley hashighlighted the role of venture capital syndication as a mechanismthrough which venture capitalists (VCs) build trusting relationshipswithin the investment venture capital community. But what are thedynamic properties of the resulting network? This paper analyzes thedynamics of syndicated deals in technology sectors. The results suggestthat VCs build reputation by committing to provide future funds in astaged deal and honoring their commitment. Reputation increasescooperation, in terms of access to 'deal flow'. The commitment toprovide future funding, however, is expensive in terms of theopportunity costs associated with a reduction in the number of newstartups in which they can participate. The reputation system isenforced by established VCs, who have more exposure to the 'deal flow'.