Invest Local or Remote? The Effects of COVID-19 Lockdowns on Venture Capital Investment around the World

Abstract

We find the “death of distance” in venture capital (VC) investment caused by the COVID-19 pandemic: VCs invest in more distant startups during the COVID-19 lockdowns and such effects continue after the economy reopens. The death of distance is more pronounced when there is better internet infrastructure, lower information asymmetry between VCs and entrepreneurs, and smaller deal size. The pandemic-spurred advancement and adoption of remote communication technology contribute to the documented observations. The death of distance in VC investment implies more vibrant entry of outside VCs into geographically localized markets, intensified competition among VCs, and mitigated regional inequality of entrepreneurial access to VC financing.

Keywords: Venture Capital, Entrepreneurship, COVID-19, Lockdown, Digital Economy JEL Classification Numbers: G24, G23, L26

JEL Classification: G24, G23, L26