What are the key challenges and opportunities for VC syndication in emerging markets?

3 Models of syndication

VCs in emerging markets structure and organize their syndicates in various ways. For instance, the lead-follow model involves one VC taking the lead role in sourcing, negotiating, and managing the deal, while the other VCs follow its terms and conditions. This reduces coordination costs and conflicts among VCs, but also limits their influence and involvement. Alternatively, the co-lead model allows for more collaboration and balance among VCs, but also increases negotiation costs and complexity. Finally, a club model enables more trust and alignment among VCs, but requires more commitment and coordination.

4 Outcomes of syndication

The empirical evidence is mixed and context-dependent, but the effects of VC syndication in emerging markets on the performance and impact of the startups and the VCs themselves can be either positive or negative. Positively, syndication can enhance the value creation and value capture of the startups and the VCs, by providing more capital, expertise, network, and support. It can also foster the development and innovation of the VC ecosystem and the entrepreneurial ecosystem in emerging markets, by increasing the availability, diversity, and quality of funding and opportunities. Negatively however, syndication can reduce the efficiency and effectiveness of the startups and the VCs, by creating more agency problems, moral hazards, free riding, and coordination failures. It can also undermine the competitiveness and sustainability of the VC ecosystem and the entrepreneurial ecosystem in emerging markets by creating more crowding out, homogenization, and dependence on external factors.

5 Implications of syndication

Investigating the implications of VC syndication in emerging markets for the future of VC practice and policy reveals several key considerations. VCs must consider the costs and benefits of syndication, selecting the right model and partners for each deal or portfolio. It is also important to establish clear terms and conditions, roles and responsibilities, and communication and governance mechanisms for their syndicates. Moreover, VCs should monitor and evaluate their syndicate performance and impact, making adjustments as needed. Policymakers, on the other hand, should create an environment conducive to VC syndication with adequate legal, regulatory, and fiscal frameworks, as well as facilitating cross-border and cross-sector collaboration. Furthermore, policymakers should promote a culture of trust and transparency among VCs by encouraging best practices, standards, and codes of conduct, as well as enhancing information disclosure and dissemination.