Mercredi | 2011-10-12

William TELKES

Nowadays, many biotechnology companies are the source of scientific and technological breakthroughs and this is especially true in the pharmaceutical industry. However, developing such innovations is particularly risky. As these innovative ventures evolve in a context of high uncertainty and as their financial needs are quite large, especially when it comes to fund clinical tests, many of them have great difficulties in finding potential funding sources. Many traditional funding sources, such as banks, are unwilling to take such risks and so they avoid participating in the financing of such companies. Unlike traditional sources of funding, venture capitalists are willing to take high risks as their ultimate goal is to make huge financial gains. Among venture capitalists funding innovative biotechnology companies, we distinguish between independent venture capitalists (IVC) and corporate venture capitalists (CVC). Both types of venture capital are similar in some respect, but there are disparities on several dimensions. Prior research suggests that both venture capitalists have complementary capabilities. In general, venture capitalists mainly privilege investments in syndicated deals, because syndication is considered as an effective way to mitigate risk and uncertainty. Moreover, as IVCs and CVCs have complementary unique resources, syndication gives them the opportunity to join forces. Based on a signaling approach, this paper aims to determine when syndication occurs, i.e. when IVCs and CVCs put together their complementary knowledge and resources. The paper shows that according to the a priori signals received ex ante on the quality of the project and the expertise level of each venture capitalist, syndication is more or less likely. When syndication occurs, it leads to a better assessment of investment opportunities and creates value in earnings compared to standalone and fixed-yield investments.