Liquidity, Risk & Venture Capital Syndication

Venture capital (VC) funds are supplied by a wide range of individual and institutional investors with varied risk profile. The funds vary in size and given funds life VC fund managers thus face two tiers of issues with liquidity and risk management. First the fund managers could face a set of issues with size of commitment and fund suppliers' risk profile. Second, as the liquidity dries up over time for a given fund the VC fund managers must deal with existing portfolio and the new opportunities in this paper I developed a simple model to capture the scenario. I have then used Australian data to verify different implications of the model. The data shows that as matter of risk liquidity management venture syndication could arise indigenously when fund suppliers impose liquidity constraints over individual financing rounds a portfolio company and when the liquidity dries up over time with successive investments in stages as new information and opportunities arise in the market