The impact of venture capital linkages on start-ups? cluster embeddedness
AbstractThe existing literature on cluster embeddedness largely neglects the impact of finance on the development of firm?s network linkages. This is striking in so far that particularly venture capital is often referred to as ?smart money? providing firms not only with funds but also with network contacts. Thus, in this paper, we intend to quantitatively assess the impact of venture capitalists on start-ups? embeddedness. Embeddedness generally occurs along three dimensions namely the societal, the network and the territorial one. Societal embeddedness refers to the cultural environment economic actions take place in. Network embeddedness representing the structure and nature of relations an organization is maintaining and territorial embeddedness implying the degree of spatial anchoring of a firm in a specific geographical area. It is assumed that for firms and regions there are several advantages arising from deep network and, respectively, territorial embeddedness: Among others, they include local knowledge spillovers which promote innovative thinking and, subsequently, strengthen firms? global competitiveness and thereby fueling regional economic growth. In addition, particularly territorial embeddedness is reckoned as shielding to some extent against firm relocation that is widely regarded as hampering regional development. Due to the riskiness of their business, insufficient hard assets, and an unforeseeable rate of return, innovative startups are generally unable to get capitalized by more conventional sources of money i.e. bank lending and therefore often return to venture capital. Besides providing incumbent innovative firms with funds, venture capitalists, reverting to their vast sectoral knowledge and personal contacts, are frequently facilitating the entry of startups into existing personal and industry networks. Generally, it is anticipated that those network contacts are densest in the immediate neighbourhood of the investor. Summing up, given its ?social? character, it is hypothesized that venture capital is an important driver of start-ups? embeddedness that is nevertheless spatially constraint. In order to answer to what extent venture capital impacts portfolio firms? territorial and network embeddedness and whether the geographical location of the venture capitalist has an effect on start-ups? local anchoring, we conduct an empirical analysis using data on venture capital flows. By reviewing cluster embeddedness from a financial geographic perspective, this analysis complements the literature that hitherto has largely neglected the role of venture capital in this respect.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by European Regional Science Association in its series ERSA conference papers with number ersa13p298.
Date of creation: Nov 2013
Date of revision:
Contact details of provider:
Postal: Welthandelsplatz 1, 1020 Vienna, Austria
Web page: http://www.ersa.org
Venture capital; Industrial Cluster; Embeddedness; Social Networks;
Find related papers by JEL classification:
- R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
- G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
This paper has been announced in the following NEP Reports:
- NEP-ALL-2014-02-21 (All new papers)
- NEP-CSE-2014-02-21 (Economics of Strategic Management)
- NEP-ENT-2014-02-21 (Entrepreneurship)
- NEP-GEO-2014-02-21 (Economic Geography)
- NEP-SBM-2014-02-21 (Small Business Management)
- NEP-URE-2014-02-21 (Urban & Real Estate Economics)
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.:
- Harald Bathelt, 2002. "The Re-emergence of a Media Industry Cluster in Leipzig," European Planning Studies, Taylor & Francis Journals, Taylor & Francis Journals, vol. 10(5), pages 583-611, July.
- Walter Powell & Kenneth Koput & James Bowie & Laurel Smith-Doerr, 2002. "The Spatial Clustering of Science and Capital: Accounting for Biotech Firm-Venture Capital Relationships," Regional Studies, Taylor & Francis Journals, Taylor & Francis Journals, vol. 36(3), pages 291-305.
- Alessandro Rosiello & Luigi Orsenigo, 2008. "A Critical Assessment of Regional Innovation Policy in Pharmaceutical Biotechnology," European Planning Studies, Taylor & Francis Journals, Taylor & Francis Journals, vol. 16(3), pages 337-357, January.
- Ron Martin & Peter Sunley, 2002. "Taking risks in regions: the geographical anatomy of Europe's emerging venture capital market," Journal of Economic Geography, Oxford University Press, Oxford University Press, vol. 2(2), pages 121-150, April.
- Mason, Colin M & Harrison, Richard T, 1995. " Closing the Regional Equity Capital Gap: The Role of Informal Venture Capital," Small Business Economics, Springer, Springer, vol. 7(2), pages 153-72, April.
- Stuart, Toby & Sorenson, Olav, 2003. "The geography of opportunity: spatial heterogeneity in founding rates and the performance of biotechnology firms," Research Policy, Elsevier, Elsevier, vol. 32(2), pages 229-253, February.
- 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 & Francis Journals, Taylor & Francis Journals, vol. 39(2), pages 255-273.
- Michael Fritsch & Dirk Schilder, 2012.
"The Regional Supply of Venture Capital: Can Syndication Overcome Bottlenecks?,"
Economic Geography, Clark University,
Clark University, vol. 88(1), pages 59-76, 01.
- Michael Fritsch & Dirk Schilder, 2010. "The Regional Supply of Venture Capital - Can Syndication overcome Bottlenecks?," Jena Economic Research Papers, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics 2010-069, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
- Michael Fritsch & Dirk Schilder, 2008.
"Does venture capital investment really require spatial proximity? An empirical investigation,"
Environment and Planning A, Pion Ltd, London,
Pion Ltd, London, vol. 40(9), pages 2114-2131, September.
- Michael Fritsch & Dirk Schilder, 2006. "Does Venture Capital Investment Really Require Spatial Proximity? An Empirical Investigation," Papers on Entrepreneurship, Growth and Public Policy, Max Planck Institute of Economics, Entrepreneurship, Growth and Public Policy Group 2006-14, Max Planck Institute of Economics, Entrepreneurship, Growth and Public Policy Group.
- Fritsch, Michael & Schilder, Dirk, 2006. "Does venture capital investment really require spatial proximity? An empirical investigation," Freiberg Working Papers, TU Bergakademie Freiberg, Faculty of Economics and Business Administration 2006,07, TU Bergakademie Freiberg, Faculty of Economics and Business Administration.
- Ron Martin & Peter Sunley, 2002.
"Deconstructing Clusters: Chaotic Concept or Policy Panacea,"
ESRC Centre for Business Research - Working Papers, ESRC Centre for Business Research
wp244, ESRC Centre for Business Research.
- Ron Martin & Peter Sunley, 2003. "Deconstructing clusters: chaotic concept or policy panacea?," Journal of Economic Geography, Oxford University Press, Oxford University Press, vol. 3(1), pages 5-35, January.
- Philip Cooke & Nick Clifton & Mercedes Oleaga, 2005. "Social capital, firm embeddedness and regional development," Regional Studies, Taylor & Francis Journals, Taylor & Francis Journals, vol. 39(8), pages 1065-1077.
- Ron Boschma, 2005. "Proximity and Innovation: A Critical Assessment," Regional Studies, Taylor & Francis Journals, Taylor & Francis Journals, vol. 39(1), pages 61-74.
- Cooke, Philip & Gomez Uranga, Mikel & Etxebarria, Goio, 1997. "Regional innovation systems: Institutional and organisational dimensions," Research Policy, Elsevier, Elsevier, vol. 26(4-5), pages 475-491, December.
- Joris Knoben, 2006. "A Relational Account of the Causes of Spatial Firm Mobility," ERSA conference papers, European Regional Science Association ersa06p1, European Regional Science Association.
- Matthew A. Zook, 2004. "The knowledge brokers: venture capitalists, tacit knowledge and regional development," International Journal of Urban and Regional Research, Wiley Blackwell, Wiley Blackwell, vol. 28(3), pages 621-641, 09.
- Bygrave, William D., 1987. "Syndicated investments by venture capital firms: A networking perspective," Journal of Business Venturing, Elsevier, vol. 2(2), pages 139-154.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Gunther Maier).
If references are entirely missing, you can add them using this form.