Venture Capital and Startup Agglomeration

93 Pages Posted: 6 Sep 2021 Last revised: 25 Oct 2024

See all articles by Jun Chen

Jun Chen

University of Illinois at Chicago - Department of Finance

Michael Ewens

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

Date Written: September 2021

Abstract

The paper studies venture capital’s (VC) 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 a 20% 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.

Suggested Citation

Chen, Jun and Ewens, Michael, Venture Capital and Startup Agglomeration (September 2021). NBER Working Paper No. w29211, Available at SSRN: https://ssrn.com/abstract=3918106

Jun Chen (Contact Author)

University of Illinois at Chicago - Department of Finance ( email )

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Michael Ewens

Columbia Business School ( email )

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HOME PAGE: http://michaelewens.com

National Bureau of Economic Research (NBER) ( email )

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