Working Paper: NBER ID: w15102
Authors: Henry Chen; Paul Gompers; Anna Kovner; Josh Lerner
Abstract: We document geographic concentration by both venture capital firms and venture capital-financed companies in three cities - San Francisco, Boston, and New York. We find that firms open new satellite offices based on the success rate of venture capital-backed investments in an area. Geography is also significantly related to outcomes. Venture capital firms based in locales that are venture capital centers outperform, regardless of the stage of the investment. Ironically, this outperformance arises from outsized performance outside of the venture capital firms' office locations, including in peripheral locations. If the goal of state and local policy makers is to encourage venture capital investment, outperformance of non-local investments suggests that policy makers might want to mitigate costs associated with established venture capitalists investing in their geographies rather than encouraging the establishment of new venture capital firms
Keywords: venture capital; geography; investment success; entrepreneurship
JEL Codes: G24; R12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Number of venture capital offices in a region (G24) | Venture capital investments in that area (G24) |
| Success rate of previous VC investments in a region (G24) | Number of new VC offices opened (M13) |
| VC firms based in venture capital centers (G24) | Success rate of VC firms (G24) |
| Nonlocal investments by VC firms (F23) | Success rates of nonlocal investments (G19) |