Venture Capital and Startup Agglomeration

70 Pages Posted: 12 Apr 2021 Last revised: 17 Apr 2023

See all articles by Jun Chen

Jun Chen

Renmin University of China - School of Business

Michael Ewens

Columbia Business School; National Bureau of Economic Research (NBER)

Date Written: April 16, 2021


The paper studies venture capital's role in the geographic clustering of high-growth startups. We exploit a rule change that disproportionately impacted U.S. regions that historically lacked VC financing via a restriction of banks to invest in the asset class. A one-standard-deviation increase in VCs' exposure to the rule led to an 18% decline in fund size and a 10% decrease in the likelihood of raising a follow-on fund. Startups were not wholly cushioned: financing and valuations declined. Startups also moved out of impacted states after the rule change, likely exacerbating existing geographic disparity in entrepreneurship.

Keywords: Venture capital, banking, limited partners, entrepreneurship, agglomeration, regulation

JEL Classification: G21, G23, G24, K22, L26

Suggested Citation

Chen, Jun and Ewens, Michael, Venture Capital and Startup Agglomeration (April 16, 2021). Available at SSRN: or

Jun Chen (Contact Author)

Renmin University of China - School of Business ( email )

59 Zhongguancun Street, Haidian District
Beijing, 100872

Michael Ewens

Columbia Business School ( email )

665 W. 130th Street
732 Kravis Hall
New York, NY 10027
United States


National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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