Venture Capital and Private Equity Contracting, 2nd Edition

16

Local Bias

This chapter examines local bias in the context of venture capital (VC) investments. Based on a sample of US VC investments between 1980 and June 2009, we find more reputable VCs (older, larger, more experienced, and with stronger IPO track record) and VCs with broader networks exhibit less local bias. Staging and specialization in technology industries increase VCs’ local bias. We also find that the VC exhibits stronger local bias when it acts as the lead VC and when it is investing alone. Finally, we show that distance matters for the eventual performance of VC investments.

Keywords

Home bias; venture capital

16.1 Introduction

In practice, venture capital (VC) is not about the people you know but rather where you are: “FIBER networks ...