Trust, Competence Ties and Partner Selection in Venture Capitalists Networks

This paper analyses the factors impacting partnering decisions in Venture Capital syndicates using a unique dataset of 2,373 VC transactions in Germany. By including time varying information about industry experience and cooperation patterns we explicitly take into account not only the changing social context for partner selection but also the dynamic nature of financial and managerial resources of VCs. The data suggests strong evidence that lead investors try to access additional industry experience that allows the provision of higher quality managerial advice to the funded entrepreneur. Moreover, we find strong evidence that information sharing and goodwill as well as competence trust can create a foundation for future cooperation. The data indicates that the chances to participate in a newly formed syndicate rise significantly for a potential partner VC when previous direct ties are present with the current lead investor