Factors Influencing Venture Capital Availability in Rural States: Possible Lessons Learned from West Virginia

Venture capital has been identified by many as a vital element in the rapid economic growth of certain regions. The lack of access to capital, especially equity capital, has been identified as a major constraint to the economic growth of rural areas (i.e., venture capital access, as a centripetal force, concentrates rather than disperses economic activity). Researchers have advanced a focus on primarily urban sectors, such as information technologies, higher administration costs due to a lack of deal flow, and a limited support network for entrepreneurs as explanations for the lack of venture capital in rural areas. Yet, some venture capital firms are starting to develop interest in investing in rural businesses. Venture capital firms currently operating in West Virginia are surveyed concerning relevant issues, including expected rate of return, knowledge of natural resource based sectors, and the impact of distance on venture capital investments in rural areas. Survey results imply that venture capital can diffuse in rural communities that are not necessarily nearby. Likewise, lack of knowledge concerning natural resource based businesses was not a deterrent. Survey results strongly indicate that companies applying for venture capital in West Virginia had little understanding of how venture capital firms interact with portfolio firms or even the basic nature of venture capital. Survey results support the contentions that a lack of deal flow and entrepreneur support networks and culture are barriers. But, survey results did not agree that venture capital firms operating in smaller metropolitan and rural areas are willing to accept lower rates of return in rural as opposed to urban areas.