Local Bias in Venture Capital Investments

Abstract:     
This paper examines local bias in the context of venture capital (VC) investments. Based on a sample of US VC investments between 1980 and June 2009, we find more reputable VCs (older, larger, more experienced, and with stronger IPO track record) and VCs with broader networks exhibit less local bias. Staging and preference for technology ventures increases VCs’ local bias. We also find that the VC exhibits stronger local bias when it acts as the lead VC and when it is investing alone. Finally, we show that distance matters for the eventual performance of VC investments.

Keywords: Home bias, private equity

JEL Classifications: G24, G31, G32, G28, G33, G34, G35, G38

Working Paper Series