Abstract

Venture capital (VC) has become an increasingly international phenomenon but there is a dearth of research that looks at the process by which VC firms co-invest across borders. We aim to fill this gap by examining drivers of cross-border partner selection decisions with a particular focus on the impact of experience-based trust on cross-border partner selection decisions in VC syndicates. Further, we examine how this relationship is moderated by different aspects of the institutional environment. We analyze these issues by studying the selection of foreign VC firms by local VC firms in cross-border VC syndicates in Europe over the period 1997 to 2008. The total sample consists of 1021 VC investments in which 391 different local VC investors invited 302 different foreign investors. Our results indicate that the effect of experience-based trust on partner selection is negatively moderated by the extent of generalized trust and the level of legal protection offered by the host country. The effect of experience-based trust on partner selection decisions is positively moderated by the level of cultural distance between the host country and the country of the foreign partner. Implications for theory and practice are suggested.

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