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Does Venture Capital Investment Really Require Spatial Proximity? An Empirical Investigation

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Author Info
Michael Fritsch
Dirk Schilder

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Abstract

We examine the role of spatial proximity for Venture Capital (VC) investments in Germany. The main database is a survey of 85 personal interviews with representatives of different types of financial institutions. The analysis shows that spatial proximity is far less important for VC investments than is often believed. For example, the results indicate that syndication is partly used as an alternative to spatial proximity. Telecommunication does not work as a substitute for face-to-face contact. On the whole, regional proximity is not a dominant factor in VC partnerships. Therefore, the absence of VC firms in a region does not appear to cause a severe regional equity gap.

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Paper provided by Max Planck Institute of Economics, Entrepreneurship, Growth and Public Policy Group in its series Papers on Entrepreneurship, Growth and Public Policy with number 2006-14.

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Length: 33 pages
Date of creation: May 2006
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Handle: RePEc:esi:egpdis:2006-14

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Related research
Keywords: Venture Capital; spatial proximity; start-up financing;

Other versions of this item:

Find related papers by JEL classification:
G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment
D21 - Microeconomics - - Production and Organizations - - - Firm Behavior
M13 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - New Firms; Startups
R12 - Urban, Rural, and Regional Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Lerner, Josh, 1995. " Venture Capitalists and the Oversight of Private Firms," Journal of Finance, American Finance Association, vol. 50(1), pages 301-18, March. [Downloadable!] (restricted)
  2. Paul Gompers & Josh Lerner, 2001. "The Venture Capital Revolution," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 145-168, Spring. [Downloadable!] (restricted)
  3. Mitchell A. Petersen & Raghuram G. Rajan, 2002. "Does Distance Still Matter? The Information Revolution in Small Business Lending," Journal of Finance, American Finance Association, vol. 57(6), pages 2533-2570, December. [Downloadable!] (restricted)
    Other versions:
  4. Joshua Lerner, 1994. "The Syndication of Venture Capital Investments," Financial Management, Financial Management Association, vol. 23(3), Fall.
  5. Michael Fritsch & Viktor Slavtchev, 2005. "The Role of Regional Knowledge for Innovation," ERSA conference papers ersa05p623, European Regional Science Association. [Downloadable!]
  6. De Clercq, Dirk & Sapienza, Harry J., 2006. "Effects of relational capital and commitment on venture capitalists' perception of portfolio company performance," Journal of Business Venturing, Elsevier, vol. 21(3), pages 326-347, May. [Downloadable!] (restricted)
  7. Thomas Hellmann & Manju Puri, 2002. "Venture Capital and the Professionalization of Start-Up Firms: Empirical Evidence," Journal of Finance, American Finance Association, vol. 57(1), pages 169-197, 02. [Downloadable!] (restricted)
    Other versions:
  8. James A. Brander & Raphael Amit & Werner Antweiler, 2002. "Venture-Capital Syndication: Improved Venture Selection vs. The Value-Added Hypothesis," Journal of Economics & Management Strategy, Blackwell Publishing, vol. 11(3), pages 423-452, 09. [Downloadable!] (restricted)
  9. Sapienza, Harry J., 1992. "When do venture capitalists add value?," Journal of Business Venturing, Elsevier, vol. 7(1), pages 9-27, January. [Downloadable!] (restricted)
  10. Lockett, Andy & Wright, Mike, 2001. "The syndication of venture capital investments," Omega, Elsevier, vol. 29(5), pages 375-390, October. [Downloadable!] (restricted)
  11. Ron Martin, 1989. "The Growth and Geographical Anatomy of Venture Capitalism in the United Kingdom," Regional Studies, Taylor and Francis Journals, vol. 23(5), pages 389-403, October. [Downloadable!] (restricted)
  12. Gupta, Anil K. & Sapienza, Harry J., 1992. "Determinants of venture capital firms' preferences regarding the industry diversity and geographic scope of their investments," Journal of Business Venturing, Elsevier, vol. 7(5), pages 347-362, September. [Downloadable!] (restricted)
  13. Sapienza, Harry J. & Manigart, Sophie & Vermeir, Wim, 1996. "Venture capitalist governance and value added in four countries," Journal of Business Venturing, Elsevier, vol. 11(6), pages 439-469, November. [Downloadable!] (restricted)
  14. Peter Sunley & Britta Klagge & Christian Berndt & Ron Martin, 2005. "Venture capital programmes in the UK and Germany: In what sense regional policies?," Regional Studies, Taylor and Francis Journals, vol. 39(2), pages 255-273, April. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Dorothea Schaefer & Dirk Schilder, 2007. "Smart capital in German start-ups - an empirical analysis," Jena Economic Research Papers in Economics 2007-015, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics, Thueringer Universitaets- und Landesbibliothek. [Downloadable!]
  2. Terttu Luukkonen & Mari Maunula, 2006. "`Coaching´ Small Biotech Companies into Success: The Value-adding Function of VC," Discussion Papers 1032, The Research Institute of the Finnish Economy. [Downloadable!]
  3. 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. [Downloadable!]
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