Grounded capital: venture financing and the geography of the Internet industry, 1994--2000

Despite the rhetoric in the popular and business press trumpeting the removal of 'the limitations of geography', a number of researchers have demonstrated that rather than simply dispersing, the Internet in fact exhibits an uneven spatial pattern throughout the United States and world. Using a combination of interview and regression methodologies, this article argues that the regional distribution of venture capital investing played a central role in determining the location of new Internet startups. This was largely due to the premium that entrepreneurs placed on one of the hallmarks of venture capital, i.e. speed, and the reliance of venture capitalists upon local networks and knowledge for their investments. The ability to provide these types of value-added inputs in a timely manner is greatly assisted by geographic proximity. Rather than being an easily moved and fungible commodity, venture capital investing depends upon non-monetary inputs such as knowledge about possible investments and prefers to be close to companies in order to monitor and assist them. Thus, despite telecommunications technologies and global financial markets that have vastly expanded the geographic range of economic interaction, regions remain central to economic development in the current economy. Copyright 2002, Oxford University Press.