Does venture capital syndication affect mergers and acquisitions?

We find that venture capital (VC) syndicate-backed targets receive higher acquisition premiums and spend more time negotiating transaction terms. The acquirers of syndicate-backed targets receive lower cumulative abnormal returns surrounding the acquisition announcement, but they outperform the individual-backed targets in the long-term. We show that VC syndication creates value for entrepreneurial firms by leading to larger and more independent boards of directors prior to acquisition. It also leads to better incentive alignment between the CEO and the shareholders of the acquiring firm. In addition, syndicate-backed targets prefer stock as the method of payment in mergers and acquisitions. Collectively, we show that VC syndication creates value for both entrepreneurial firms and their acquirers in the long-term. • VC syndicate-backed targets have higher premiums and spend more time to complete acquisitions. • The acquirers of syndicate-backed targets have lower announcement returns but better long-term performance. • Syndicate-backed targets have a larger board size and more board independence prior to acquisition. • The acquirers of syndicate-backed targets have a better incentive alignment between the CEO and shareholders during the post-acquisition period. • Syndicate-backed targets prefer stock as the method of payment.