Buy Local? The Geography of Successful and Unsuccessful Venture Capital Expansion
Harvard Business School
Paul A. Gompers
Harvard Business School - Finance Unit; Harvard University - Entrepreneurial Management Unit; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)
Federal Reserve Bank of New York
Harvard Business School - Finance Unit; Harvard University - Entrepreneurial Management Unit; National Bureau of Economic Research (NBER)
June 15, 2009
Harvard Business School Finance Working Paper No. 1420371
We document geographic concentration by both venture capital firms and venture capital-financed companies in three cities - San Francisco, Boston, and New York. We find that firms open new satellite offices based on the success rate of venture capital-backed investments in an area. Geography is also significantly related to outcomes. Venture capital firms based in locales that are venture capital centers outperform, regardless of the stage of the investment. Ironically, this outperformance arises from outsized performance outside of the venture capital firms' office locations, including in peripheral locations. Outperformance of non-local investments suggests that policy makers in regions without local venture capitalists might want to mitigate costs associated with established venture capitalists investing in their geographies rather than encouraging the establishment of new venture capital firms.
Number of Pages in PDF File: 41
Keywords: entrepreneurship, private equity, regional location
JEL Classification: G24, R12
Date posted: June 16, 2009
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