The Death of Distance? COVID-19 Lockdowns and Venture Capital Investment
71 Pages Posted: 7 Jul 2021 Last revised: 15 Jul 2022
Date Written: July 13, 2022
Based on 4,086 venture capital (VC) firms in 49 countries accounting for 90.0% of global GDP, we study how COVID-19 lockdowns affect VC investment decisions. Contrary to the conventional wisdom that lockdowns exacerbate the “tyranny of distance,” our findings suggest the “death of distance”: VCs invest in more distant ventures during the COVID-19 pandemic in 2020 and such effects persisted and accelerated in 2021. The death of distance in VC investment is more pronounced when there is better internet infrastructure, when the level of information asymmetry between VCs and entrepreneurs is lower, and when the deal size is smaller. The pandemic-spurred advancement and adoption of remote communication technology have contributed to the death of distance in VC investment. As geographic boundaries of VC investment are shattered after the pandemic, local competition among the VCs has intensified and the regional inequality of entrepreneurial access to VC financing has been mitigated.
Keywords: Venture Capital, Entrepreneurship, COVID-19, Pandemic, Lockdown, Digitalization
JEL Classification: G24, G23, L26
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