Working Paper: NBER ID: w29211
Authors: Jun Chen; Michael Ewens
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.
Keywords: No keywords provided
JEL Codes: G21; G23; G24; K22; L26
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Loss of bank capital (F65) | VC fundraising (G24) |
| VC fundraising (G24) | Startup financing (M13) |
| Exposure to Volcker Rule (G18) | Likelihood of raising follow-on fund (G24) |
| Bank exposure (F65) | VC fundraising (G24) |
| Home bias among LPs (F21) | Local VC funding (G24) |
| Loss of local VC funding (H79) | Startup mobility to VC hubs (J62) |