Buy Local? The Geography of Successfuland Unsuccessful Venture Capital Expansion
Henry Chen
*
, Paul Gompers
**
, Anna Kovner
***
, and Josh Lerner
**
June 2009
We document geographic concentration by both venture capital firms and venture capital- financed companies in three cities
–
San Francisco, Boston, and New York. We find that firmsopen new satellite offices based on the success rate of venture capital-backed investments in anarea. Geography is also significantly related to outcomes. Venture capital firms based inlocales that are venture capital centers outperform, regardless of the stage of the investment. Ironically, this outperformance arises from outsized performance outside of the venture capital
firms’ office locations, including i
n peripheral locations. Outperformance of non-localinvestments suggests that policy makers in regions without local venture capitalists might want to mitigate costs associated with established venture capitalists investing in their geographiesrather than encouraging the establishment of new venture capital firms.
*
Harvard University.
**
Harvard University and NBER.
***
Federal Reserve Bank of New York. Harvard Business
School‟s Division of Research provided financial assistance.
We are grateful for able research assistance fromMonica Cox. We thank Sue Helper, Olav Sorenson, and William Strange for helpful discussions. All errors andomissions are our own. The views expressed in this paper are the authors' and should not be attributed to the FederalReserve Bank of New York or the Federal Reserve System.
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