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The Impact of Venture Capital Monitoring

45 Pages Posted: 15 Dec 2015  

Shai Bernstein

Stanford Graduate School of Business

Xavier Giroud

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Richard R. Townsend

University of California, San Diego (UCSD) - Rady School of Management

Date Written: April 16, 2014

Abstract

We show that venture capitalists’ (VCs) on-site involvement with their portfolio companies leads to an increase in (1) innovation and (2) the likelihood of a successful exit. We rule out selection effects by exploiting an exogenous source of variation in VC involvement: the introduction of new airline routes that reduce VCs’ travel times to their existing portfolio companies. We confirm the importance of this channel by conducting a large-scale survey of VCs, of whom almost 90% indicate that direct flights increase their interaction with their portfolio companies and management, and help them better understand companies’ activities.

Keywords: Venture Capital, Monitoring, Innovation, Agglomeration

JEL Classification: D81, G24, L26, O31, O32

Suggested Citation

Bernstein, Shai and Giroud, Xavier and Townsend, Richard R., The Impact of Venture Capital Monitoring (April 16, 2014). Journal of Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2341329 or http://dx.doi.org/10.2139/ssrn.2341329

Shai Bernstein (Contact Author)

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

Xavier Giroud

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States

HOME PAGE: http://www.columbia.edu/~xg2285/

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR) ( email )

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Richard Townsend

University of California, San Diego (UCSD) - Rady School of Management ( email )

9500 Gilman Drive
Rady School of Management
La Jolla, CA 92093
United States

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