The geography of venture capital and entrepreneurial ventures’ demand for external equity

Abstract

In this paper, we study how the geography of venture capital (VC) and the location of entrepreneurial ventures affect the propensity of the latter to seek external equity financing. We analyse a sample of 533 European high-tech entrepreneurial ventures and examine their external equity-seeking behaviour in the 1984-2009 period. We find that ventures are more likely to seek external equity when the local availability of VC is higher, whereas the level of competition of the local VC market plays a negligible role. The stimulating effect of the availability of VC on the demand for external equity rapidly decreases with distance and vanishes at approximately 250 km. It also vanishes when national borders are crossed, except for countries at a close cultural and institutional distance.Moreover, the distance decay of the stimulating effect of the availability of VC varies with the characteristics of prospective VC investors, namely, their private or public ownership and governance and their reputation. These results have important implications for the policy that European countries and the European Commission should implement to foster the demand for VC by entrepreneurial ventures, thereby improving the functioning of the VC market in Europe.

Inclusive digital finance: the industry of equity crowdfunding

“…Previous studies have shown that accessing external finance from traditional channels is challenging for firms located in peripheral areas (i.e. far from great metropolitan areas where VC investors are concentrated, Chen et al, 2010;Colombo et al, 2019) and for minority entrepreneurs (e.g. female and ethnic entrepreneurs, Verheul & Thurik, 2001).…”

Bridging the equity gap for young innovative companies: The design of effective government venture capital fund programs

“…Recent accounts, however, do not support this argument: peripheral underdeveloped regions may suffer from a lack of infrastructure, R&D and innovation intensity, and appropriate quality of entrepreneurial human capital (Munari and Toschi, 2015). These characteristics result in smaller founding rates, lower quality YICs and thus a lower demand for risk capital (Bernstein et al, 2017;Colombo et al, 2019;Gompers et al, 2016).…”

“…The literature indicates that PVCs and their investments exhibit a considerable level of spatial concentration in financial centers and hightech regions (Chen et al, 2010;Colombo et al, 2019). To compensate for potential equity gaps in economically lagging areas, governments have often implemented local GVC programs to foster regional development (Bertoni et al, 2017;Bertoni and Tykvová, 2015;Kovner and Lerner, 2015;Lerner, 1999Lerner, , 2002.…”

The geography of business angel investments in the UK: Does local bias (still) matter?

“…These agency concerns are geographical because BAs invest locally to allow close monitoring of their investments (Shane and Cable, 2002). Distance 'amplifies information asymmetries' and creates uncertainty because of the unfamiliarity of the context within which a venture is embedded (Colombo et al, 2019(Colombo et al, , p. 1152). To cope with these problems investors' often look to their own personal networks.…”