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Spatial proximity effects and regional equity gaps in the venture capital market: evidence from Germany and the United Kingdom

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Author Info

  • Ron Martin
  • Christian Berndt
  • Britta Klagge
  • Peter Sunley

Abstract

The issue of ‘equity gaps’ has loomed large in recent discussions of enterprise formation and development, both in the United Kingdom and in Germany. One particularly intriguing, but highly elusive, aspect of this issue is the question of whether equity gaps have a regional dimension: are certain regions at a systematic disadvantage with respect to the provision of equity capital? In this paper, we explore this question in the context of the UK and German venture capital industries, drawing both on unpublished industry data and on information obtained from original surveys of venture capital firms in the two countries. We report clear evidence that the venture industries in both countries are spatially constituted. Despite important national differences, venture capital firms tend to be concentrated in identifiable clusters and their investment outcomes show clear evidence of spatial proximity effects; investment is disproportionately concentrated in those regions that also contain the major clusters of venture capital firms. However, how far this spatial form produces regional equity gaps is hard to determine. Venture capitalists themselves argue that they do not intentionally discriminate between regions in their decisionmaking, and many acknowledge the existence of funding and deal-size gaps but not regional gaps per se. But their perception of project risk is, nevertheless, regionally sensitive. We argue that the notion of a simple supply gap overlooks the way in which the localised form of the industry is based on a dynamic learning process in which demand and supply processes combine with their embeddedness in social networks and individual perceptions in a mutually reinforcing way. Less-favoured regions, with low investment rates, few local venture capital firms, and a dearth of experienced specialist intermediaries, may thus be trapped in a situation of both depressed demand for and supply of venture capital investment.

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Bibliographic Info

Article provided by Pion Ltd, London in its journal Environment and Planning A.

Volume (Year): 37 (2005)
Issue (Month): 7 (July)
Pages: 1207-1231

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Handle: RePEc:pio:envira:v:37:y:2005:i:7:p:1207-1231

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Web page: http://www.pion.co.uk

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Cited by:
  1. Achleitner, Ann-Kristin & Braun, Reiner & Bender, Marko & Geidner, Annabell, 2008. "Community development venture capital: concept and status quo in Germany," CEFS Working Paper Series 2008-03, Center for Entrepreneurial and Financial Studies (CEFS), Technische Universität München.
  2. José Ernesto Amorós & Miguel Atienza & Gianni Romaní, 2008. "Formal and Informal Equity Funding in Chile," Estudios de Economia, University of Chile, Department of Economics, vol. 35(2 Year 20), pages 179-194, December.
  3. Michael Fritsch & Dirk Schilder, 2010. "The Regional Supply of Venture Capital - Can Syndication overcome Bottlenecks?," Jena Economic Research Papers 2010-069, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
  4. Alessandro Rosiello & Gil Avnimelech & Morris Teubal, 2011. "Towards a systemic and evolutionary framework for venture capital policy," Journal of Evolutionary Economics, Springer, vol. 21(1), pages 167-189, February.
  5. Lutz, Eva & Bender, Marko & Achleitner, Ann-Kristin & Kaserer, Christoph, 2013. "Importance of spatial proximity between venture capital investors and investees in Germany," Journal of Business Research, Elsevier, vol. 66(11), pages 2346-2354.
  6. Jun Zhang, 2011. "Related Variety, Global Connectivity and Institutional Embeddedness: Internet Development in Beijing and Shanghai Compared," Papers in Evolutionary Economic Geography (PEEG) 1110, Utrecht University, Section of Economic Geography, revised Jun 2011.
  7. Fritsch, Michael & Schilder, Dirk, 2006. "Is venture capital a regional business? The role of syndication," Freiberg Working Papers 2006,09, TU Bergakademie Freiberg, Faculty of Economics and Business Administration.

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