Venture Capital and Value Added: Impact of Distance on Performance

Abstract

Research found that venture capital financing has a positive effect on firms’growth. Part of this positive impact is explained by the value added, i.e., monitoring and strategic advice, provided by venture capital entities (VCEs, hereafter) to their portfolio companies. Literature found that spatial proximity between VCE and invested firms facilitates the interchange of information, and thus the execution of value added activities provided by VCEs. In this work, we investigated whether geographical distance, measured in both kilometers and travel time between portfolio companies and their lead investor, affects performance. We base our analysis on a sample of 1035 firms observed between 1996 and 2018. The results of our difference-in-differences econometric estimation indicate that distance matters for companies invested by private venture capital entities: on average, firms that are closer to their lead investor present a higher growth in terms of assets when compared to the most distant ones.