For VCs, Investing Closer to Home may Hurt Performance
Among tech entrepreneurs, it’s common knowledge that venture capitalists like to invest locally. Focusing on nearby startups makes it easier for VCs to monitor their portfolio firms, huddle with company founders and broker introductions to useful industry contacts, among other benefits. And that produces more successful businesses and, for investors, a bigger bang for the buck. But a recent study suggests that such geographic clustering may in fact have the opposite effect. Indeed, researchers from Harvard University and the New York Fed found that VCs get higher returns investing in startups in cities outside their home region. Examining more than 2,000 VC firms’ results over roughly 30 years, they conclude that investments in areas where they have a branch office,…
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