Abstract

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Buy Local? The Geography of Successful and Unsuccessful Venture Capital Expansion

Henry Chen
Harvard Business School

Paul A. Gompers
Harvard Business School; Harvard University - Entrepreneurial Management Unit; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

Anna Kovner
Federal Reserve Banks - Federal Reserve Bank of New York; New York University - Robert F. Wagner Graduate School of Public Service

Josh Lerner
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

Abstract:
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.

Keywords: entrepreneurship, private equity, regional location

JEL Classifications: G24, R12

Working Paper Series

Date posted: June 16, 2009 ; Last revised: November 18, 2009

Suggested Citation

Chen, Henry, Gompers, Paul A., Kovner, Anna and Lerner, Josh, Buy Local? The Geography of Successful and Unsuccessful Venture Capital Expansion (June 15, 2009). Harvard Business School Finance Working Paper No. 1420371. Available at SSRN: http://ssrn.com/abstract=1420371

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Contact Information

Josh Lerner (Contact Author) Harvard Business School - Finance Unit ( email ) Boston, MA 02163 United States 617-495-6065 (Phone) 617-496-7357 (Fax) HOME PAGE: http://www.people.hbs.edu/jlerner/
Harvard University - Entrepreneurial Management Unit ( email ) Cambridge, MA 02163 United States
National Bureau of Economic Research (NBER) 1050 Massachusetts Avenue Cambridge, MA 02138 United States
Henry Chen Harvard Business School ( email ) Soldiers Field Road Morgan 270C Boston, MA 02163 United States
Paul A. Gompers Harvard Business School ( email ) Boston, MA 02163 United States 617-495-6297 (Phone) 617-496-8443 (Fax)
Harvard University - Entrepreneurial Management Unit ( email ) Cambridge, MA 02163 United States
National Bureau of Economic Research (NBER) 1050 Massachusetts Avenue Cambridge, MA 02138 United States
European Corporate Governance Institute (ECGI) c/o ECARES ULB CP 114 B-1050 Brussels Belgium HOME PAGE: http://www.ecgi.org
Anna Kovner Federal Reserve Banks - Federal Reserve Bank of New York ( email ) 33 Liberty Street New York, NY 10045 United States
New York University - Robert F. Wagner Graduate School of Public Service The Puck Building 295 Lafayette Street, Second Floor New York, NY 10012 United States

Abstract

Date posted: June 16, 2009 ; Last revised: November 18, 2009

Suggested Citation

Contact Information

Josh Lerner (Contact Author)

Henry Chen

Paul A. Gompers

Anna Kovner