Ending the Mending Wall: Herding, Media Coverage, and Co-Location in IT Entrepreneurship
51 Pages Posted: 17 Oct 2016
Date Written: October 15, 2016
The advent of the Internet and the maturation of the Information Technology (IT) industry has significantly decreased transaction and coordination costs. However, there is still a strong preference for being geographically proximal, notably when accessing capital markets for innovation activities (like the formation of funding ties between venture capitalists (VCs) and new IT ventures). While VCs prefer to support co-located entrepreneurs, significant evidence suggests that the funding of non-local IT entrepreneurs does occur. In this work, we investigate how trends in the form of herding and media coverage, which are not specific to the entrepreneur but pertain to the technology sector the entrepreneur operates in, may influence VCs to reach across geographic boundaries. Using a series of matched sample methodologies, results suggest that the influence of media is significantly stronger for VCs considering funding non-co-located, as opposed to co-located, IT entrepreneurs. However, and strikingly, support for the effect of herding is notably weaker. Managerial and policy implications, particularly for technology entrepreneurs and policy-makers seeking to support such innovators, are discussed within.
Keywords: venture capital, entrepreneurship, herding, media coverage, coarsened exact matching, co-location, information technology
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