The Dichotomy of Networking and Syndication: Evidence from the United States

Syndication and networking are two common phenomena among venture capital firms. Although the focus of a VC firm syndicating most deals is on diversification of the financial risk, the focus of a VC firm establishing a network through syndicated deals is on getting access to expertise, deal flow, and contacts of its peers. In this article, we ask if establishing relationships is more important than diversification of financial risk for young VC firms. We study US-based young VC firms during their first five years of operations and their impact on their long-term success and survivability. We conclude that for a young VC firm, diversification of financial risk pays off in the short run only; such VC firms have a lower chance of surviving and are less successful. However, those young VC firms focused on establishing a relationship network not only perform better in the short term, but also survive longer and are more successful in the long run.