Influence of venture capital syndication on governance and performance of new ventures

Abstract

The research examines the effectiveness of governance systems in venture capital (VC)–backed technology-based new ventures that are not yet at the initial public offering stage. The novel study from 98 VC-backed technology-based new ventures examines how the role of Founder-CEO and venture performance varies in venture capital syndicated new ventures. Strategic innovation enables the new ventures to position their products differently from their competition and achieve strategic financial rewards, which compensates the investors and founders for their willingness to take risks. The research finds that VC-Syndication results in more Founder-CEO succession than solo VC new ventures. Additionally, foreign VCSyndication encompasses more professional-CEOs than domestic VC-Syndication. Consistent with our theoretical framework of VC-Syndication and the involvement of foreign venture capitalists, not only results in changing the CEO role, but also influences the innovative and financial performance. Changing the Founder-CEO reflects the strategic challenges new ventures face in their development. The results are consistent with the assumption that governance factors are important tools used to provide resources and capabilities, while being involved in mitigating agency risks associated with venture capital involvement in new ventures, and reflect positively on new venture performance.