Follow the Money: How Venture Capital Facilitates Emigration of Firms and Entrepreneurs in Europe

Abstract

An increasingly global venture capital (VC) business raises the question whether foreign VCs’
investments pull economic activity away from domestic economies. Using a large sample of
VC-backed European ventures, we analyze whether involvement of foreign VCs influences
firms’ and entrepreneurs’ migration patterns. We provide evidence that foreign investors, in
particular from the U.S., on average, back much better European ventures and increase the
likelihood of foreign exits and emigration of entrepreneurs. These effects are robust to
endogenous selection. Our findings suggest that VC firms are a funnel through which high-impact
economic actors are absorbed by countries with foreign VC presence. Governmental efforts to increase domestic supply of VC should have a positive impact on domestic economies.

Keywords: foreign venture capital, exit, international migration

JEL Classification: G15, G24, F22, F30, F65, F66