Time: 13:00–15:00 (GMT+01:00), Wednesday, 30 September 2020 
Presenter: Professor Victor Murinde, SOAS University of London
Online venue: Click here to join the CGF Seminar Room on Microsoft Teams

For any inquiry about how to join the online seminar, please contact Dr Meng Xie (xm1@soas.ac.uk) 

Abstract

Venture capital (VC) partner selection is central to understanding why syndication can reduce risk and enhance the value of portfolio firms. However, given the dynamics of VC industry, a long-standing problem is that it is notoriously difficult to model the VC partner selection process and assist the lead VC firm to select the very best partners. This paper is, to the best of our knowledge, the first to apply machine learning (ML) methods to build a prediction model of VC partner selection decision in venture capital syndication using firm profiles and transactional relationships among the firms. We use a data set of 10,252 transactions with 264 potential candidates and more than 130,000 decisions in China. We invoke neural network and deep learning analytics to capture dynamics and non-linear relationships. We uncover four new findings. First, the results show that our approach successfully predicts partner selection decision with prediction accuracy of 99.32%. Second, after employing rare events logistic regression to study what characteristics of the potential partner influence the likelihood of collaboration, we find that industry experience represents a valuable signal to infer the ability of potential partner VCs and that combining signals of industry experience and joint history or reciprocation strongly increases the probability of cooperation. Third, by splitting the sample into the different stages of development for the portfolio firm, we find that signal strength increases the likelihood of cooperation in later stages more than in earlier stages. Fourth, signal strength matters more if the partner is not backed by the government. These new findings have important implications for policy makers and practitioners in the venture capital syndication industry.

Authors: Qiong Ji, Xi’an Jiatong-Liverpool University, Xiaoming Ding, Xi'an Jiaotong-Liverpool University, Victor Murinde, SOAS University of London

Presenter

Professor Victor Murinde is the AXA Professor of Global Finance and Director of the Centre for Global Finance at School of Finance and Management, SOAS University of London. He is a financial economist, with more than 25 years’ expertise, post-PhD, mainly involving university research and teaching, but also including senior-level stints at practitioner, policy and consultancy roles for governments and leading international organisations. He has contributed over 100 research papers to the financial economics literature, mainly in the areas of banking and finance, development finance, and financial markets.