Syndication is a joint investment of several investors in one company. Syndicated deals are common in venture capital or private equity industries. There are several reasons for which investors syndicate their deals.

First, syndication improves the portfolio diversification and risk sharing of the investors as each of the investors can, with a limited amount of resources, participate in more projects. Second, information sharing may be another reason for cooperation among investors.

Syndication may already be important during the selection process because a syndicate of investors may reduce the asymmetries of information more efficiently and be able to select the best quality projects better than a single investor. In practice, the decision to put money into a project is ot en made conditional upon the finding of another partner who is willing to cofinance the firm.

Third, multiple investors may generate a higher value added for their portfolio firms compared to deals financed by a single investor (stand alone deals). Multiple investors may of er an improved managerial support for their portfolio firms through their complementary skills and through a larger variety of contacts than a single investor.

Fourth, syndication may be a means of mitigating competition. Instead of competing for deals, the investors cooperate. Fifth, when reciprocity works properly, syndication can be a means of assuring deal flow. Sixth, investors may learn from each other during the investment process.

However, syndication also incurs costs. The single investor has to take into account that—when he decides to syndicate a deal— he would have to share the profits with his partners. For this reason, experienced investors who would not profit a great deal from information sharing, value adding, and learning from their potential partners may not be willing to syndicate their best deals.

Moreover, some agency problems may be aggravated in syndicated deals compared to stand-alone deals because more participants with different preferences and information sets are involved. However, reputational mechanisms, repeated relationships, and reciprocity are expected to diminish potential agency conflicts among the syndicate partners.