When venture capital (VC) investment flows into a local economy, does it yield economic activity beyond the receiving ventures? While a large literature studies the effect of VC investments on venture-level activity, its consequences for broader economic activity are less well understood. We study the effect of VC investment flows on destination county employment, wages, and venture creation, using a novel instrument based on the ‘social connectedness’ of counties to major non-local sources of VC investment. Using detailed data on investor-to-venture VC flows, we find substantial positive effects: using instrumental-variable estimates, each million dollars invested into a county yields approximately one new venture, 41 jobs, and seven million dollars in payroll. We also document positive spillovers across industries, particularly toward those supplying VC-backed ventures—thereby contributing to the resource munificence of the local economy and its entrepreneurial ecosystem

Poelhekke, Steven; Wache, Benjamin

When venture capital (VC) investment flows into a local economy, does it yield economic activity beyond the receiving ventures? While a large literature studies the effect of VC investments on venture-level activity, its consequences for broader economic activity are less well understood. We study the effect of VC investment flows on destination county employment, wages, and venture creation, using a novel instrument based on the ‘social connectedness’ of counties to major non-local sources of VC investment. Using detailed data on investor-to-venture VC flows, we find substantial positive effects: using instrumental-variable estimates, each million dollars invested into a county yields approximately one new venture, 41 jobs, and seven million dollars in payroll. We also document positive spillovers across industries, particularly toward those supplying VC-backed ventures—thereby contributing to the resource munificence of the local economy and its entrepreneurial ecosystem

No 23-050/VIII, Tinbergen Institute Discussion Papers from Tinbergen Institute

Keywords: Venture capital; social connectedness; supplier services; entrepreneurial ecosystem (search for similar items in EconPapers)
JEL-codes: G24 L26 R11 (search for similar items in EconPapers)
Date: 2023-08-30, Revised 2026-02-23
New Economics Papers: this item is included in nep-cfn, nep-ent, nep-fdg, nep-geo, nep-gro and nep-tid
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Citations: View citations in EconPapers (1)

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