Is venture capital a local business? : A test of the proximity and local network hypotheses

Venture capital (VC) investment has long been conceptualized as a local business , in which the VC’s ability to source, syndicate, fund, monitor, and add value to portfolio firms critically depends on their access to kno
Venture capital (VC) investment has long been conceptualized as a local business , in which the VC’s ability to source, syndicate, fund, monitor, and add value to portfolio firms critically depends on their access to knowledge obtained through their ties to the local (i.e., geographically proximate) network. Consistent with the view that local networks matter, existing research confirms that local and geographically distant portfolio firms are sourced, syndicated, funded, and monitored differently. Curiously, emerging research on VC investment practice within the United States finds that distant investments, as measured by “exits” (either initial public offering or merger & acquisition) out-perform local investments. These findings raise important questions about the assumed benefits of local network membership and proximity. To more deeply probe these questions, we contrast the deal structure of cross-border VC investment with domestic VC investment, and contrast the deal structure of cross-border VC investments that include a local
partner with those that do not. Evidence from 139,892 rounds of venture capital financing in the period 1980-2009 suggests that cross-border investment practice, in terms of deal sourcing, syndication, and performance indeed change with proximity, but that monitoring practices do not. Further, we find that the inclusion of a local partner in the investment syndicate yields surprisingly few benefits. This evidence, we argue, raises important questions about VC investment practice as well as the ability of firms to capture and lever the presumed benefits of network membership.
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Metadaten
Author:Robert Wuebker, William Schulze, Roman Kräussl
URN:urn:nbn:de:hebis:30:3-286306
Parent Title (German):Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 2012,15
Series (Serial Number):CFS working paper series (2012, 15)
Publisher:Center for Financial Studies
Place of publication:Frankfurt, M.
Document Type:Working Paper
Language:English
Year of Completion:2012
Year of first Publication:2012
Publishing Institution:Universitätsbibliothek Johann Christian Senckenberg
Release Date:2013/02/04
Tag:Internationalization; Networks; Venture Capital
Issue:Version November 2012
Pagenumber:58
Note:
Stand: November 2012
HeBIS PPN:328028207
Institutes:Center for Financial Studies (CFS)
Dewey Decimal Classification:330 Wirtschaft
JEL-Classification:E20 General
E65 Studies of Particular Policy Episodes
N14 Europe: 1913–
O52 Europe
P52 Comparative Studies of Particular Economies
Sammlungen:Universitätspublikationen
Licence (German):License Logo Veröffentlichungsvertrag für Publikationen

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