Going Abroad, Friends on Board: Cross-Border Venture Capital and Syndication Strategy in China

Abstract

Cross-border venture capitals (CBVCs) are increasingly prevailing in recent decades, inter alia in emerging markets like China. The venture capital (VC) firms investing outside their home countries are faced with foreignness which is broadly regarded as liability. The primary aim of this article is to contribute to our understanding how foreignness affects VC’s strategy when entering emerging markets, particularly with respect to the foreignness originated from cultural distance. The data consist of over 5,000 CBVC deals taking place in China mainland from 1988 to 2016. Our empirical study shows that, with foreignness growing, it turns from liability into advantage in the context of CBVCs. We find an inverse U-shape relationship between foreignness and syndication, with VC firm’s reputation as the moderator. Besides, foreign VC firms establish local subsidiary when faced with foreignness, which serves as alternative to syndication. The key contribution of this article is that foreignness turns from liability into advantage in emerging markets, which exerts a curvilinear impact on the entry strategy of VC firms. This study advances the knowledge of foreignness and VC strategy, and sheds new light on entrepreneurial activities in emerging markets.

Like Performance, Perfect Match: Role of Past Performance in Venture Capital Syndication

“…As suggested in the theory of self-categorization (Turner et al, 1987), categorization are perceived to reflect social reality if inter-group differences are maximized and intra-group differences are minimized (Hornsey, 2008). Prior syndication is likely take place among VCFs sharing a variety of attributes like age (Bubna et al, 2020), experience (Lerner, 1994), home market (Qiu et al, 2021), strategy (Arundale, 2020;Bubna et al, 2020), etc. Thus, with categorization based on performance, the differences of these attributes are minimized in-group and maximized intra-group.…”