Importance of Spatial Proximity between Venture Capital Investors and Investees in Germany

Self‐selection of entrepreneurial firms in thin venture capital markets: Theory and empirical evidence

“…In fact, closeness improves coaching and monitoring by allowing more frequent contact (Bernstein, Giraud, & Townsend, ; Lerner, ). As a result, evidence from the U.S. (Chen et al, ; Gompers & Lerner, ; Sorenson & Stuart, ) and Europe (e.g., Bertoni, Colombo, & Quas, ; Lutz, Bender, Achleitner, & Kaserer, ) shows that most investee firms are located close to their VC investors. Moreover, a lack of local investors is not easily compensated by outside VC investors because the latter typically need the screening and monitoring capabilities of local partners when they invest outside of their local environments (Devigne, Vanacker, Manigart, & Paeleman, ; Mäkelä & Maula, ).…”

Patterns in Spatial Distribution of Venture Capital and Private Equity Investments in Brazil

“…The study identifies national differences between the two countries but identifies the concentration of venture capital firms in clusters on more developed regions and the existence of equity gaps on apparently deprecated regions . Recently, Lutz et al (2013) concluded that the probability of a financing relationship in Germany, which has a dense transport infrastructure, decreases by 8% if the journey time increases by on standard deviation, which reinforces the impact of spatial proximity in the likelihood of an investment. High impact entrepreneurs from deprecated regions are expected to bare liabilities of distance regarding the disadvantage in getting comparable projects funded due to the additional costs involved in screening, due diligence and monitoring (Florida and Kenney, 1988;Lutz et al, 2012;Zook, 2002).…”

“…The VC literature emphasizes that particularly during the initial and developmental phases of companies there is a need for spatial proximity between the fund manager and the investee company (Bender & Lutz, 2009;Harding, 2000/ Lutz et al, 2013. The assumption underlying this hypothesis is that agency and transaction costs are expected to be lower in deals where investors and investee are closer.…”

The role of foreign and domestic venture capital in innovation: evidence from China

“…Spatial proximity between investors and investees is very important for entrepreneurial firms. Geographic proximity could decrease information asymmetry between investors and investees (Shane and Cable, ; Lutz et al ., ) and also increase institutions’ incentives to purse active monitoring by reducing their communication and transportation costs (Huang and Kang, ). Mäkelä and Maula () argue that DVCs with geographic proximity to investment targets could more efficiently evaluate them and provide postinvestment monitoring and value‐adding services.…”

“…Mäkelä and Maula () argue that geographic proximity to investment targets allows VCs for better postinvestment monitoring and value‐adding services, which is conducive to innovative activities (Tian, ). Specifically, geographic proximity makes deal screening, due diligence and monitoring easier and cheaper because it is less expensive and time‐consuming, less complicated to organise personal contacts (Lutz et al ., ). Besides, geographic proximity could decrease information asymmetry between venture capitalists and firms through more intense, potentially less formal ways of communication (Shane and Cable, ; Huang and Kang, ).…”