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Venture Capital and Startup Agglomeration

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  • Chen, Jun
  • Ewens, Michael

    (California Institute of Technology)

Abstract

The paper studies venture capital’s (VC) role in the geographic clustering of high-growth startups. We exploit a rule change that disproportionately impacted U.S. regions that historically lacked VC financing via a restriction of banks to invest in the asset class. A one-standard-deviation increase in VCs’ exposure to the rule led to a 20% decline in fund size and a 10% decrease in the likelihood of raising a follow-on fund. Startups were not wholly cushioned: financing and valuations declined. Startups also moved out of impacted states after the rule change, likely exacerbating existing geographic disparity in entrepreneurship.

Suggested Citation

  • Chen, Jun & Ewens, Michael, 2021. "Venture Capital and Startup Agglomeration," SocArXiv 8tpux_v1, Center for Open Science.
  • Handle: RePEc:osf:socarx:8tpux_v1
    DOI: 10.31219/osf.io/8tpux_v1
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