We argue that the process whereby a venture capital syndicate is formed is characterized by two-sided asymmetric information, as the profitability signals held by different VCs are non-verifiable and manipulable.

We analyze how an appropriate design of the syndicating VCs’ cash-flow rights can induce them to truthfully reveal their signals to each other. We then study how the incentive costs of syndication and the shape of financial claims vary with the VCs’ levels of expertise in evaluating entrepreneurial projects.