Consequences of information asymmetry in a syndication network: The joint investments of the Israeli venture capital funds

This study examines the social embeddedness of venture capital funds in Israel, operating under conditions of severe uncertainty, asymmetric information, and high financial risks. More specifically, it inquiries into the social organization of the Israeli venture capital industry between 1994 and 2002. The study uses a mixed method approach. A qualitative analysis was facilitated by content analysis of 53 in-depth interviews with key industry players. It illustrates the moral and motivational foundations of joint organizational endorsements. Yet, these endorsements are asymmetric, linked to variations in a fund’s structural position and conduct. Statistical analyses, estimating organizational performance (proxied by four dependent variables: the number of a venture capital fund’s successful exits, exits rate, and number of failures, as well as failure rate) are explained by two contrasting structural patterns of joint investment formations: market reach, measured by betweenness centrality, and social closure, operationalized as a local venture capital fund’s density. Finally, this chapter discusses implications for business strategy and policy, organizational sociology, network theory, and structures of asymmetric information.